Press Release No. 00/26

Press Release: IMF and IDA Support Debt Relief for Tanzania

April 5, 2000

The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package for Tanzania under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Total relief from all of Tanzania's creditors is worth more than US$2 billion, which is equivalent to more than half of the net present value of total debt outstanding after the full use of traditional debt relief mechanisms. The IMF and IDA will start providing interim debt relief in April.

The enhanced HIPC Initiative will help Tanzania to advance its poverty reduction programs and stimulate economic growth. The debt reduction operation will translate into debt-service relief over time of US$3 billion, or about one-half of Tanzania's debt-service obligations during fiscal years 2001-2003 and about one-third of Tanzania's debt-service obligations thereafter. This will create room for additional public expenditures on poverty reduction. Tanzania'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 achieving poverty reduction.

The assistance committed by the IMF (of US$152 million) will be delivered over a 10-year period, and will cover on average 58% of debt-service obligations to the Fund. The debt relief provided by IDA (of US$1.2 billion) will be spread over a period of 20 years, covering 69.1% of Tanzania's debt-service obligations to IDA.

Tanzania will receive the bulk of the assistance under the enhanced HIPC Initiative when it satisfies a number of conditions, including adoption and implementation of a participatory poverty reduction strategy paper (see Annex).

ANNEX

1. Tanzania

Track record

Tanzania has made substantial progress in implementing economic reforms. During the past 4 years, inflation came down to less than 7%, after many years of rates exceeding 20%, and the government has been repaying domestic debt, after many years of borrowing in excess of 3% of GDP annually. Tanzania has also made a strong structural adjustment effort in recent years, including far-reaching reforms in the external, financial, and public sectors.

Conditionality

The full assistance from the IMF and IDA will be delivered to Tanzania when the following conditions have been met:

• Maintenance of a stable macroeconomic environment, as evidenced by satisfactory performance under a program supported by an arrangement under the IMF's Poverty Reduction and Growth Facility, and specific structural reform measures in the areas of governance, government financial management, tax reform, improvement of the business environment , and improvement of utility performance.
  
  
• Completion of a poverty reduction strategy paper through a participatory process and a first progress report on the paper's implementation, both of which need to be broadly endorsed by the Executive Boards of the IMF and the World Bank. For this purpose, the government is currently carrying out a dialogue with civil society, which is expected to take place in the next few months. The government's interim poverty reduction strategy paper was published on March 14, 2000.
  
  
• Implementation of a set of other measures specifically related to poverty reduction, including improvements in the poverty database and monitoring capacity, provision of allocations in the budget for 2000/01 in line with poverty reduction objectives, progress in school mapping, and progress on immunization and implementation of the national spearhead campaign against HIV/AIDS.
  
  
• Confirmation of the participation of other creditors in the debt relief operation.

2. General

The HIPC Initiative was launched by the World Bank and the IMF 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 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 its delivery. The enhanced Initiative aims at reducing the net present value (NPV) of debt at the decision point to a maximum of 150% of exports and 250% of government revenue, and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67% 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 IMF- and IDA-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, the IMF and IDA grant interim relief, provided that the country stays on track with 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 the end of the second stage, when the floating completion point has been reached, the IMF and IDA 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 April 2000, four countries had reached their decision points under the enhanced framework (Bolivia, Mauritania, Tanzania and Uganda), with total committed assistance estimated at US$9.2 billion, representing an average stock-of-debt reduction of about 45% on top of traditional debt relief mechanisms. In addition, three countries had reached their decision points under the original framework (Burkina Faso, Côte d'Ivoire, and Mali), while two others (Guyana and Mozambique) had already reached their completion points. Total assistance under the HIPC Initiative committed to these five countries amounted to US$5.4 billion, equivalent to almost 50% 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/