IMF and World Bank Ink US$2.1 Billion Debt Relief for Guinea
The International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA) have decided to support US$ 2.1 billion in debt relief for Guinea, representing a 66 percent reduction of its future external debt service over a period of 40 years.
The Boards of Directors of both institutions determined that Guinea has made satisfactory progress in meeting the requirements to reach the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative, the stage at which the HIPC debt relief becomes irrevocable and the country will benefit from the Multilateral Debt Relief Initiative (MDRI).
The requirements met by Guinea included, among others, the preparation and satisfactory implementation of a Poverty Reduction Strategy Paper (PRSP), the maintenance of a sound macroeconomic policy framework, the improvement of a poverty database and monitoring capacity, the publication of annual reports on the activities of the Anti-Corruption Agency, an increase in gross enrolment rates in primary schools, and an increase in immunization rates for children.
Guinea was granted a waiver on the trigger related to audits of large government procurement contracts, as the broad objective of this requirement was achieved and implementation has improved.
“Reaching the HIPC completion point represents an important achievement for Guinea. It reflects the significant progress made in economic management following the first democratic elections in December 2010,” said Harry Snoek, IMF mission chief for Guinea.
“Reaching the completion point will help Guinea allocate more resources for poverty reduction and economic growth. Sound macroeconomic management will remain critical after the completion point to make the most of Guinea’s abundant mining resources and other growth potentials,” Mr. Snoek said.
“Full debt relief is a tremendous development opportunity for Guinea, as this will help the country achieve economic stability and devote more resources to reduce poverty,” said Ousmane Diagana, World Bank Director for Guinea.
“We will continue to support Guinea in strengthening financial management, transparency and accountability to turn debt relief into visible development outcomes such as better health, education, environmental preservation and infrastructure for sustainable and inclusive growth,” Mr. Diagana said.
Of the resulting reduction of about US$2.1 billion, about 70 percent will come from multilateral creditors, and the remaining from bilateral and commercial creditors. MDRI relief provided by the World Bank’s IDA and the African Development Bank Group would save Guinea US$964 million in debt service over 40 years. There remain no loans eligible for MDRI relief from the IMF.
Full delivery of debt relief (HIPC Initiative, MDRI, and additional bilateral assistance at the completion point) will considerably reduce the debt burden of Guinea. The annual external debt service will fall by 70 percent, from an average of US$170 million for the period 2012-2021 to US$49 million.
Nevertheless, both the IMF and the World Bank consider that the improved Guinea’s debt indicators will be sensitive to export levels and the terms of new external financing, underlining the need for sound macroeconomic management, further progress with structural reform, and strengthened debt management.
Guinea becomes the 34th country to reach the completion point under the HIPC Initiative. The completion point marks the end of the HIPC process, which started in 2000 when the Executive Boards of the IMF and the World Bank’s IDA agreed that Guinea had met the requirements for reaching the decision point, the stage at which countries start receiving debt relief on an interim basis.
In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries to ensure debt sustainability, and thereby reduce the constraints on economic growth and poverty reduction imposed by the unsustainable debt-service burdens in these countries.
To date, 36 HIPC countries have reached their decision points, of which 34 (including Guinea) have reached the completion point.
Created in 2005, the aim of the Multilateral Debt Relief Initiative is to reduce further the debt of eligible low-income countries and provide additional resources to help them reach the Millennium Development Goals. Under the MDRI, three multilateral institutions – the World Bank’s International Development Association, the International Monetary Fund and the African Development Fund– provide 100 percent debt relief on eligible debts to qualifying countries normally at the time they reach the HIPC Initiative completion point.