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Press Release: IMF and World Bank Support US$3 billion In Debt Service Relief For Tanzania Under Enhanced HIPC Initiative
November 27, 2001
The International Monetary Fund (IMF) and theWorld Bank's International Development Association(IDA) agreed today thatTanzania has taken thesteps necessary to reach its completion point under theenhanced framework of theHeavilyIndebted Poor Countries (HIPC) Initiative. Tanzania becomes the fourth country toreach this point (joining Bolivia, Mozambique and Uganda).
Debt service reliefunder the enhanced HIPC Initiative from all of Tanzania's creditors will amount toapproximately US$3 billion over time(US$2.026 billion in netpresent value [NPV] terms). Asaresult of HIPC assistance, thenet present value of Tanzania's total external debtis reduced by some 54percent. The NPV of debt-to-export ratio is expected toremain wellbelow the target ceiling of 150 percent throughout theperiod 2000-2020. Moreover, after taking intoaccount additional bilateral assistance beyond the enhanced HIPC Initiative, the debt ratios fall even further.
Debt service payments are cut substantially—by anaverage of 47percentover time—from about US$193 million in fiscal year 1999/2000 (actually paid before HIPCassistance) to an average of US$116 million during 2001/02 to2010/11, and US$87 million during 2011/12-2020/21. Debtservice as apercentage of government revenue is reducedfrom 19 percent in 2000/2001 before HIPC assistance to anaverage after HIPC reliefof 7.7 percent over 2000/01-2010/11 and 4.4 percent over2011/12 -2020/21. Resources made available bydebt relief provided under theHIPC Initiative will be allocated to key anti-poverty programs, which are outlined in Tanzania's Poverty Reduction Strategy Paper (PRSP).
The debtreliefrequired of multilateral creditors under the enhanced HIPC Initiative amounts toUS$1.020 billion in NPV terms. IDAwill provide debt reliefunder theenhanced HIPC Initiative of US$694.5 million in NPV terms, delivered through a69percent reduction in debt serviceon IDA credits disbursed and outstanding as of end-June 1999. The IMF will provide debt reliefof some US $120 million inNPV terms. HIPC reliefrequired of bilateral and commercial creditors amounts toUS$1.006 billion in NPV terms. Tanzaniahas negotiated adebt rescheduling agreement with the Paris Club on Cologne terms.Some 10 percent of Tanzania's HIPC relief isexpected to be delivered bynon-Paris Club and commercial creditors. Tanzanian authorities are continuing their efforts to obtain comparable treatment from these creditors.
ANNEX
1. Tanzania
Steps Taken toReach the Completion Point Under the Enhanced HIPC Initiative
Tanzania's eligibility for debt relief under theenhanced HIPC Initiative underscores recognition by theinternational community of its continued progress inimplementing sound macroeconomic and structural policies, and of the overall quality of its Poverty Reduction Strategy Paper (PRSP).
Upon reachingits decision point under theenhanced framework of the HIPC Initiative in April 2000, Tanzania committed to undertake workin three areas in order toreach the completion pointand receive irrevocable debt reliefunder the enhanced framework:
i. Completion of afull PRSP and implementation of the poverty reduction strategy for at least oneyear;
ii. Continued implementation of strong macroeconomic and structural policies supported by anIMF Poverty Reduction and Growth Facility (PRGF) program; and,
iii. Implementation of aset of social, structural and institutional reforms.
Poverty Reduction Strategy Paper: Tanzania's PRSPhas been welcomedwithin Tanzania and by thedonor community as an important step forward in theprocess of focusing on povertyas an explicit objective of public policy. It built on a process that started with the adoption of theNational Poverty Eradication Strategyin 1997 and has been continuedin the context of annual and multi- year public expenditure reviews. Participation in public discussions leadingup tothe PRSP has been broad, and the document represents atruly homegrown development strategy. In October 2001, Tanzania presented aPRSP Progress Report.
The Economic Program:
Tanzania has establisheda solid record of economic performance overthe past several years. GDP growth increased to4.9 percentin 2000 and isexpected to remain at asimilar level in 2001, despite thenegative effects on commodityprices and tourismof theslowdown of theworldeconomy. Inflation was reduced from seven percent tofive percent from 1999 to2001, and thecurrent account deficitof thebalance of payments declined from 12 percent of GDP in 1999toless than 10 percentof GDP for 2000.
Key Policy Measures and Reforms:
Overall, Tanzania has made substantial progressin carrying out thespecific structural reforms and institutional strengthening theauthorities identified at the timeof the decision point. In governance and financial management, important stepshave been taken toimprove transparency, including byadopting, publishing and disseminating the national action plan for the control of corruption. Significant progresswas also made in otherareas, such as tax reform, improvementof the business climate, and strengthening theperformance of utilities.
In thehealth sector , Tanzania has successfully implemented a programto ensure immunizationof at least 75percent of children under theage of two against measles and diphtheria, and has implemented anational campaign against HIV-AIDS, including completion of visits to three-quarters of all districts.
In education , thegovernment has undertaken important initiatives toincrease access to, and improve, education. In cooperation with donors, the government has launched an Education SectorDevelopment Program with a chief aimof increasing access toschools, particularly in poor and underserved areas while alleviating the cost burden on households. Progress has been achieved, particularly at the primary level. Budgets have been increased, schoolfees have been abolished, and a school mapping exercise iswell underway.
2. General
The HIPCInitiative was launched bythe IMF and the World Bankin 1996as thefirst comprehensive effort to eliminate unsustainable debtin the world's poorest, most heavily indebted countries.In October 1999,the international community agreed tomake the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief eacheligible country will receive, and speedingup its delivery. The enhanced HIPC Initiative aims at reducing the NPV of debt at thedecision point toamaximumof 150 percent of exports or250 percent of government revenue, and will beprovided on top of traditional debtrelief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67percent debt reduction in NPV terms and at least comparable action by other bilateralcreditors).
Eligible countrieswill qualify for debt reliefin twostages. In the firststage, thedebtor country will need to demonstrate the capacity to use prudently theassistance granted byestablishing a satisfactory track record, normally of three years, under IMF- and IDA-supported programs. In the secondstage, after reaching thedecision point under theInitiative, the country will implement afull- fledged povertyreduction strategy, which has been prepared with broad participation of civil society, and anagreed set of measures aimed at enhancing economic growth. Duringthis stage, the IMF and IDA grant interim relief, provided thatthe country stays on trackwith its IMF- and IDA-supported program. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At theend of the second stage, when the floating completion pointhas been reached, theIMF and IDA will provide theremainder of the committeddebt relief, while Paris Club creditors will enter into ahighly concessional stock-of-debt operation with the country involved. Other multilateral and bilateralcreditors will need tocontribute to thedebt relief on comparable terms.
Some three dozen HIPCsare expected toqualify for assistance under theenhanced HIPC Initiative, thegreat majority of whichare sub- Saharan African countries. Debt reliefpackages are now in place for24countries under the enhanced HIPC Initiative framework: Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Tanzania, Ugandaand Zambia, for total committed assistance estimated at more than US$36 billion, representing, with other sources of debt relief,an average NPV stock-of-debt reduction of nearlytwo-thirds.
Fiscal year July-June
IMF EXTERNAL RELATIONS DEPARTMENT
Public Affairs Media Relations E- mail:
publicaffairs@imf.org E- mail:
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