Press Release No. 00/34

Press Release: IMF and World Bank Support Debt Relief for Uganda

May 2, 2000

The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed that Uganda has met the conditions for its completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Debt-service relief under the enhanced HIPC Initiative, from all Uganda's creditors, is about US$1.3 billion (US$660 million in net present value terms or about two-fifths of external debt). Including the US$650 million provided under the original Initiative, total debt-service under the HIPC Initiative relief will yield roughly US$2 billion.

Uganda's eligibility for debt relief under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing economic reforms and poverty reduction. It also recognizes that Uganda's poverty reduction strategy, as laid out in its Poverty Reduction Strategy paper (PRSP), will contribute to continued economic growth and an improvement in the quality of life of the poor. The enhanced HIPC debt relief, by reducing Uganda's debt-service obligations, will create room for additional public expenditures on poverty reduction. Resources made available by debt relief provided under the HIPC Initiative will be channeled into the Poverty Action Fund (PAF), and allocated to key antipoverty programs, spelled out in the PRSP. The PAF has provided a transparent link between donor support, including debt relief, and the government's poverty reduction program.

The Government of Uganda is committed to protect these outlays. In this context, it has reaffirmed that in order not to jeopardize its poverty-reduction program, the government will wholly offset the recent payments related to the purchase of a presidential aircraft by cuts in defense and other non-wage expenditures.

The World Bank's enhanced HIPC Initiative debt relief amounts to nominal US$629 million (US$357 million in NPV terms), which will be provided by covering about 54 percent of debt service falling due to IDA each year over the next 20 years (after assistance under the original HIPC framework). Together with the World Bank's assistance under the original framework (which amounted to nominal US$354 million, US$160 million in NPV terms), the World Bank provides a total of nearly US$1 billion (US$517 million in NPV terms) in HIPC Initiative assistance to Uganda. The total amount of HIPC Initiative assistance committed by the IMF, about US$210 million (US$160 million in NPV terms), will allow, over a 10-year period, to cover on average 50 percent of existing debt-service obligations to the Fund. Assistance from the IMF and IDA will be provided unconditionally once the African Development Bank (AfDB), a key creditor of Uganda, confirms its participation, which is expected shortly. In the meantime, both institutions will continue to provide interim assistance.

ANNEX

1. Uganda

Track record and poverty reduction

Uganda has made substantial progress in implementing economic reforms. During the pastsix years, inflation came down to 5.3 percent from 16.1 percent, and the overall fiscal deficit (excluding grants) was reduced to 6.5 percent from 11.2 percent of GDP. Uganda has also made a strong structural adjustment effort in recent years, including in the areas of trade liberalization, tax administration, and public enterprise reform. Uganda has recently completed a poverty reduction strategy involving a participatory process. While Uganda remains one of the poorest countries in the world, the share of the population living in poverty declined to 44 percent in 1996/97, from 56 percent in 1992/93. Substantial improvements in social indicators have also been recorded, the most notable is in the area of primary education where enrollment reached 6.5 million children in March 1999 from 2.3 million in December 1996, and the net enrollment rate increased from 56 percent in 1995/96 to 94 percent in 1998/99.

The IMF and the World Bank launched the HIPC Initiative in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to make relief under the Initiative broader, deeper, and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up the possibility of its delivery. The enhanced Initiative aims at reducing the net present value of debt at the decision point to a maximum of 150 percent of exports and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).

Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record, normally of three years, under IDA- and IMF-supported programs. In the second stage, after reaching the decision point under the Initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society, and an agreed set of measures aimed at enhancing economic growth. During this stage, IDA and IMF may grant interim relief, provided that the country stays on track with its IDA- and IMF-supported programs. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At the end of the second stage, when the floating completion point has been reached, IDA and the IMF will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.

Thirty-six countries are expected to qualify for assistance under the enhanced HIPC Initiative, of which 29 are sub-Saharan African countries. As of early May 2000, four countries had reached their decision points under the enhanced framework (Bolivia, Mauritania, Mozambique, and Tanzania) and one country its completion point (Uganda), with total committed assistance estimated at US$12.6 billion, representing an average stock-of-debt reduction of about 50 percent on top of traditional debt relief mechanisms. In addition, three countries had reached their decision points under the original framework (Burkina Faso, Cote d'Ivoire, and Mali), while one other (Guyana) had already reached its completion point. Total assistance under the HIPC Initiative committed to these four countries amounted to US$1.7 billion, equivalent to almost 50 percent debt reduction, and will be reassessed under the enhanced Initiative.

For more information on HIPC, visit:
http://www.imf.org/external/np/exr/facts/hipc.htm
http://www.worldbank.org/hipc/