Press Release No. 12/503

Press Release: IMF and World Bank Announce US$176 million Debt Relief for the Union of the Comoros

December 20, 2012

The International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA*) have decided to support US$176 million in debt relief for the Comoros, representing a 59 percent reduction of its future external debt service over a period of 40 years.¹

The Boards of Directors of both institutions² determined that the Union of the Comoros has fulfilled 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 Comoros included, among others, the satisfactory implementation of a Poverty Reduction Strategy Paper (PRSP), the maintenance of macroeconomic stability, progress in public financial management and governance, reforms on telecommunications and energy, a national measles vaccination campaign for children to achieve 90 percent coverage nation-wide, and improvements in debt management. Comoros was granted a waiver on the requirement related to the provision of textbooks and school kits for vulnerable children, as the government has adopted a new policy focusing on improving learning quality.

Mbuyamu Matungulu, IMF mission chief for Comoros, said: “Comoros has made substantial gains in macroeconomic stability in the last years; economic activity is trending up, and the fiscal position has considerably strengthened. Debt reduction under the HIPC and Multilateral Debt Relief Initiatives reinforces these achievements and uplifts the country’s growth and poverty reduction prospects. With continued close adherence to reforms and steady donor support, the improved outlook can translate into tangible gains in living standards for the poor.”

“Debt relief is a development opportunity for the Comoros,” said Haleh Bridi, World Bank Country Director for Comoros. “Debt relief will free up resources in the country to fight poverty and improve the health and education of the population,”

Of the resulting reduction of about US$176 million, about 86 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 Comoros US$83 million in debt service over 29 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 the Comoros. The annual external debt service will fall by 69 percent, from an average of 14 million for the period 2013-2021 to 4 million. Nevertheless, both the IMF and the World Bank consider that despite the improvement in the Comoros’s debt indicators the country remains vulnerable to shocks to exports and GDP.

Comoros becomes the 35th country to reach the completion point under the HIPC Initiative. The completion point marks the end of the HIPC process, which started in 2010 when the Executive Boards of the IMF and the World Bank’s IDA agreed that the Comoros had met the requirements for reaching the decision point, the stage at which countries start receiving debt relief on an interim basis.

ANNEX (Note to Editors)

The HIPC Initiative. 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 35 (including Comoros) have reached the completion point.

The MDRI. 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.

* The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing loans (called “credits”) and grants for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of assistance for the world’s 81 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change for 2.5 billion people living on less than US$2 a day. Since 1960, IDA has supported development work in 108 countries. Annual commitments have increased steadily and averaged about US$15 billion over the last three years, with about 50 percent of commitments going to Africa.

¹ The figures represent staff estimates of effective debt relief. The nominal value of debt is the amount that the debtor owes to creditors at a moment in time; the present value is the discounted sum of all future debt service (principal and interest) at a specific market rate of interest (called the discount rate). In debt-reorganization discussions, the present value concept is used to measure, in a consistent manner, the burden sharing of debt reduction among creditors. For further explanation click here to see entries for Nominal Value and Present Value in Appendix III--Glossary of External Debt Terms IMF, External Debt Statistics: Guide for Compilers and Users, (2003) IMF, Washington DC. The amount of debt relief committed to Comoros at the decision point was US$145 million in end-2009 PV terms. This committed amount along with MDRI and beyond HIPC assistance from the Paris Club implies an estimated savings in debt service of US$176 million over 40 years beginning 2013.

² The IMF Executive Board met on December 17, 2012, and the IDA Executive Board met on December 20, 2012.