News Brief No. 00/79

News Brief: IMF and World Bank Review Progress in HIPC/PRSP Implementation

September 7, 2000

The International Monetary Fund and World Bank Executive Boards today are releasing first-year progress reports on key elements of the Bank/Fund strategy for supporting their poorest member countries in reducing poverty. This approach, introduced a year ago, combines "deeper, broader and faster" debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in support of poverty reduction through increased national ownership of economic policies in participatory poverty reduction strategy papers (PRSPs), concessional lending through the IMF's Poverty Reduction and Growth Facility (PRGF), and the World Bank's IDA facility.

The status reports on the HIPC Initiative and PRSPs underline the progress achieved in a relatively short time under the new framework. The enhanced HIPC Initiative is delivering significant debt relief to countries which are demonstrating serious commitment to development and poverty reduction. The PRSP approach is widely supported by countries and development partners, and is rapidly gaining momentum. This momentum is being supplemented by the "enhanced partnership" between the World Bank and IMF announced September 6. "In no area is our cooperation over the coming months more critical than in the HIPC Initiative," declared IMF Managing Director Horst Köhler and World Bank President James Wolfensohn.

In a joint note presenting the reports (to be released), the heads of the two Bretton Woods institutions said, "We are doing everything possible to achieve speedy implementation of the HIPC Initiative and to make the PRSP approach a success. The challenge of reducing poverty is formidable and will remain so for many years, but the global community is now primed to address it with better tools and a renewed and shared sense of purpose."

The progress report on the HIPC Initiative shows that $17 billion in debt relief has been committed to 12 countries, with relief already flowing to 10 countries under the enhanced Initiative. Work is well underway to have agreements in place for a total of 20 countries by the end of the year, for combined debt relief of more than $30 billion.

With last year's enhancements, the HIPC Initiative is expected to provide nominal debt relief of around $50 billion to more than 30 countries. As a result of debt relief under the enhanced HIPC Initiative-as well as coordinated assistance from traditional debt relief mechanisms-countries will see their total debt fall by around two-thirds. For the 10 countries that have already benefited from relief under the enhanced HIPC Initiative, debt service to export ratios will on average fall to below 10 percent, one-half the developing country average. Commitments and pledges of financial support for the Initiative have been received from donors and creditors. But money still needs to be raised to allow multilateral creditors, including the IMF and the World Bank, to do their share under the HIPC Initiative.

Executive Directors of the two institutions, in separate meetings on September 5 to review the reports, welcomed progress under the enhanced HIPC Initiative, but also underlined the importance of combining sound economic policies with debt relief to achieve lasting benefits for the poorest countries. They observed that momentum has built up over the last six months, and favored rapid implementation to help the HIPCs qualify for debt relief by the end of 2000.

The PRSP progress report noted that developing countries have responded favorably to the call to prepare poverty reduction strategies, and many have moved ahead with their preparation. Such a comprehensive strategy takes time to develop, especially given the need for broad participation in each country. Consequently, countries have been preparing Interim PRSPs to guide their policies during the preparation phase. So far, about a dozen countries have completed Interim PRSPs, and two have completed their first full PRSPs. The Interim PRSPs have proven helpful in resolving the tension between the objective of country ownership and the quality of the underlying strategy on one side, and the need to move forward as quickly as possible with the debt relief necessary for poverty alleviation on the other.

As part of the enhanced partnership between the IMF and World Bank, Mr. Köhler and Mr. Wolfensohn have reiterated: "Each institution needs to focus on its respective core tasks, while working together in a complementary fashion in other areas-such as the financial sector-where our responsibilities overlap....We are determined to bring the benefits of debt relief to as many countries as possible, as rapidly as possible. Our staffs are working together closely to make sure this happens. "