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| Seven HIPCs currently being denied interim relief by the IMF
17th May 2002 By Romilly Greenhill, Jubilee Research at NEF 1. Introduction During the 2002 Spring Meeting of the IMF and World Bank in Washington, DC, debt campaigners were alarmed to learn that a total of 9 countries, which are between 'Decision Point' and 'Completion Point' under the Heavily Indebted Poor Country (HIPC) initiative, have at some point had their interim debt relief from the IMF suspended because of failure to stay 'on track' with their IMF programmes. Since that time, we have learned that Honduras is now back on track with her IMF programme, while Burkina Faso has reached Completion Point and thus received the full debt cancellation agreed under the HIPC initiative. However, a total of 7 countries still remain off track, and are therefore having their interim relief suspended. In this paper, we provide an analysis of the reasons for suspension of IMF relief for each of the 7 countries: The Gambia; Zambia; Malawi; Nicaragua; Guinea; Guinea Bissau, and Guyana. We also assess what proportion of debt relief is effectively being suspended for each country. 2. Why is interim relief being suspended? Under the enhanced HIPC initiative, countries which are between 'Decision Point', when commitments to debt relief are made, and 'Completion Point', when the final debt write-off occurs, are entitled to some interim relief on their debt service payments. For some bilateral creditors, interim relief amounts to 100% of debt service payments - in other words, no further debt service is received after Decision Point. The IMF and World Bank, in contrast, only provide for some reduction on debt service payments between Decision and Completion Points, while the full reduction is provided at Completion Point. When the IMF provides interim relief, it does so by giving the HIPC country a new grant, which countries can then use to pay the debt owed to the IMF. During the interim period, the grant is disbursed each year and this disbursal depends on the country being on track with their IMF Poverty Reduction and Growth Facility (PRCG) programme. If the country is not on track, the 'grant' will not be approved, and effectively the country is denied debt relief. 3. Why are countries going off track? The reasons for countries going off track vary, but are generally related to delays in privatisation and problems in meeting macroeconomic performance criteria. In other words, countries are being denied debt relief to help meet the needs of the poor in their countries because of failure to meet the IMF dictated macroeconomic targets. This is yet another example of the IMF given priority to macroeconomic stability over all else, including the lives of poor people. Here we provide details of the 7 countries which have currently had their relief suspended. The World Bank have expressed concerns that this list will grow. a) The Gambia The Gambia is not strictly off track with their IMF programme, and was on track as recently as November 2001. However, they are now between programmes, due to the failure of a mission in February 2002 to finish negotiating a new PRGF. The reasons for failure to complete the negotiations included The Gambia's expansionary fiscal policy, concerns over revenue collection, and problems with implementation of agricultural policies. The IMF mission is in The Gambia as of May 2002 and it is expected that a new agreement could come on line in mid-June or July. b) Zambia Zambia is deemed to be off track because of failure to reach agreement with Russia over payments. Zambia went into arrears with Russia, and was therefore automatically cut off from providing debt relief. The issue has now been resolved, and it is expected that Zambia will be at the board very soon. However, concerns remain over privatisation of Zambia's national bank and other industries. Zambia has also failed to receive any interim relief from Paris Club creditors to date because of administrative bottlenecks on the part of these creditors. c) Malawi Malawi has not passed successfully through any PRGF reviews over the last two years. IMF Missions have visited Malawi in November 2001 and February 2002 but no agreement has been reached. The main reasons for failure to reach agreement on new IMF programmes have included Malawi's economic performance, fiscal policy, expenditures on non-priority areas, governance problems and the need for corrective measures to control spending and finances. All donors have cut off aid to Malawi due to governance problems, pending a decision by the IMF. d) Nicaragua Nicaragua has consistently faced problems with their IMF programme, and their last PRGF formally expired in mid- March. The IMF had been waiting for a new government to come in before taking any action, and there are now indications that the new President wants to move towards an agreement with the IMF. Previous areas of concern have included expenditure over-runs and non-financial public sector spending. e) Guinea Guinea is off track because of revenue shortfalls, spending on non-priority areas and delays in privatisation. f) Guinea Bissau Guinea Bissau went off track soon after reaching Decision Point in December 2000 and is not making any discernible progress towards reaching Completion Point. Problems highlighted by the IMF include errors and omissions in public finances, un-programmed expenditures, fiscal problems and governance problems. The World Bank has warned that if Guinea Bissau does not conform to the programme measures agreed, it will may also withhold debt relief. g) Guyana Guyana's IMF programme expired at the end of 2001, and has not yet been re-started. Problems included the budget; revenues; expenditures in the non-financial public sector; a very large increase in the deficit; and delays in privatisation of GUYASCO. According to the IMF, negotiations are currently underway for a new PRGF agreement and some progress is being made. 4. How much relief is being withheld? The cost to any HIPC of having their IMF debt relief suspended will depend on how much they owe to the IMF and the proportion of total debt service due between Decision Point and Completion point that is owed to the IMF. In Table 1 we provide an assessment of the total cost to the 7 HIPCs of the withheld relief on IMF debt service. We find that as a result of interim relief provided under the HIPC initiative, this year the 7 HIPCs should be seeing their debt payments to the IMF reduced from $277m to $89m, a saving of around $178m. Suspension of IMF debt relief is therefore costing these 7 countries $178m in 2002. On average, the 7 HIPCs are therefore being denied about 25% of all the benefits that they should be receiving from the enhanced HIPC initiative. In particular, Zambia is being denied about 50% of the savings she should be receiving. Zambia's case is particularly shocking because bilateral creditors have also failed to provide any interim relief to date, as discussed above, because of administrative bottlenecks. In means that Zambia has received very little out of the HIPC process to date, despite having reached Decision Point in December 2000. Guyana and Mali have lost 20% and 10% respectively of the total savings they should be receiving. It should also be noted that if suspension of IMF programmes causes delays in reaching Completion Point for the 7 countries, the debt relief costs will be even greater. This is because a total write-off of debt stocks does not take place until Completion Point. Table 1: Allocation of HIPC Debt Relief Savings between IMF and other Creditors
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