Madagascar to receive US$1.5 billion in debt service relief; The IMF and World Bank support debt relief for Madagascar under the enhanced HIPC initiative.

M2 PRESSWIRE-22 December 2000-INTERNATIONAL MONETARY FUND: Madagascar to receive US$1.5 billion in debt service relief; The IMF and World Bank support debt relief for Madagascar under the enhanced HIPC initiative (C)1994-2000 M2 COMMUNICATIONS LTD

RDATE:22122000

The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package for Madagascar under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Total service relief from all of Madagascar's creditors is worth about US$1.5 billion (US$0.8 billion in Net Present Value (NPV) terms1), which is equivalent to about 40 percent of total debt outstanding after the full use of traditional debt relief mechanisms.

The impact of HIPC assistance is substantial. Debt service savings will average some US$62 million per year between 2001 and 2019. Debt service as a percentage of government revenue falls from 25 percent in 1999 to 10 percent in 2004 and average about 6 percent during 2010 and 2019. The resources freed up from HIPC assistance will provide crucial support in a number of priority areas outlined by Madagascar authorities in their interim poverty reduction strategy paper (PRSP). In the coming three years, social spending will grow steadily as a percentage of GDP, with spending on education and health care rising to seven times that spent on debt service payments. Particular attention is being directed toward improving access to health and education, rural roads and water and direct support to communities.

IDA will provide HIPC assistance amounting to about US$252 million in NPV terms, which will be delivered over the next 19 years by providing 50 percent relief on annual debt service due. The assistance committed by the IMF of about US$22 million in NPV terms will be delivered over a 7-year period.

Both IDA and the IMF will provide interim assistance.

Madagascar 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).