Sudan benefits from debt relief under the HIPC initiative: World Bank and IMF
The Boards of Directors of the International Development Association (IDA) of the World Bank and the International Monetary Fund (IMF) have determined that Sudan has taken the necessary steps to begin receiving debt relief in the country. under the Reinforced Heavily Indebted Poor Countries (HIPC) Initiative. Sudan is the 38th country to reach this milestone, known as the HIPC decision point.
Debt relief will help Sudan implement essential reforms to improve the lives of its people by freeing up resources to fight poverty and improve social conditions. Sudan’s external public debt will be irrevocably reduced – through HIPC debt relief and other HIPC-anchored debt relief initiatives – by over US $ 50 billion in present value terms net, which represents more than 90% of the total external debt of reaching the HIPC completion point in about three years.
In addition, as Sudan continues on the path to peace, stability and development after more than 30 years of isolation from the international financial system, the normalization of its relations with the international community will enable it to access additional financial resources essential to strengthen the economy and improve social conditions.
“Today marks an important milestone that will allow Sudan to significantly reduce its debt burden. This is a potentially transformative outcome for a country of 44 million people that has suffered from conflict, instability and economic isolation for decades, ”said World Bank Group President David. Malpass following the discussion by the Board of Directors of the World Bank on June 28, 2021. “The World Bank provided arrears clearance grants to Sudan and supported the Sudan Family Support Program, and j I look forward to further intensifying our commitment to improve the living conditions of the Sudanese people.
“I would like to congratulate the government and people of Sudan for their constant efforts over the past year, which made it possible to take this historic milestone under difficult conditions exacerbated by the COVID-19 pandemic,” said Kristalina Georgieva, Managing Director of the IMF. “Successful reform efforts have laid the groundwork for fostering inclusive economic growth and meeting the needs of the most vulnerable. Sudan must support and expand the implementation of these reforms – and in doing so, it can count on the continued support of the IMF to ensure a more prosperous future. “
“This decision is an important step that will support Sudan’s reform and development agenda and our efforts to move away from the past and foster a better life for our people,” said Abdallah Hamdok, Prime Minister of the Republic of Sudan. “The journey that led to this decision required hard work, dedication and a strong partnership with the international community. It is a great day for Sudan and reaffirms that all the efforts and sacrifices of the Sudanese people are recognized and rewarded. The Government of Sudan expresses its gratitude to the IMF, the World Bank Group and other partners for their unwavering support and to the Sudanese people for their resilience, patience and dedication in these difficult times. “
Sudan is committed to strengthening macroeconomic stability; implement poverty reduction policies; and put in place a set of reforms focused on fiscal sustainability, exchange rate flexibility, broadening the social safety net, strengthening the financial sector and improving governance and transparency, in order to reach the HIPC completion point. The World Bank and the IMF will continue to work together to provide the technical assistance and policy guidance the authorities need to achieve these goals, including in the context of the IMF’s new 39-month financial arrangement.
In addition, following arrears clearance, the World Bank has released substantial project finance through IDA, which will provide nearly US $ 2 billion in grants for poverty reduction and recovery. sustainable economy, with a focus on improving competitiveness, transparency and accountability; increase investments in irrigation and agriculture to support sustainable livelihoods; support access to energy, water, health and education; job creation; and create entrepreneurial opportunities for women and young people.
The leaders of the World Bank Group and the International Monetary Fund express their gratitude to their member countries from all regions and income levels, especially Canada, France, Italy, Malta, Saudi Arabia, Sweden , Switzerland, the United Kingdom and the United States, in collaboration with the European Commission, whose interventions and additional grants have helped catalyze international support and mobilize the financial resources necessary to help Sudan reach the point decision-making. They also wish to thank the other countries that have followed their budget process to contribute: Austria, Denmark, Germany, the Netherlands, Norway, Portugal, Spain and Turkey.
Details of the debt relief transaction
At the start of the HIPC process, Sudan’s total external debt, public and publicly guaranteed, was estimated at $ 56.2 billion in NPV terms. Applying traditional debt relief mechanisms reduces this debt to $ 30.9 billion.
Additional debt relief under the enhanced HIPC Initiative is estimated at US $ 23.3 billion in NPV terms. Of this amount, US $ 4.6 billion, US $ 17.0 billion and US $ 1.7 billion are expected to be provided by official multilateral, bilateral and commercial creditors, respectively.
Paris Club creditors have provided financing assurances for interim debt relief for Sudan. The main Paris Club creditors for Sudan are France, Austria, the United States, Belgium and Italy. The IMF Executive Board approved interim debt relief for the debt service owed to the IMF during the period between the HIPC decision and completion points. At the completion point of the HIPC Initiative, Sudan’s current debt to the IMF will be paid with the proceeds of voluntary financial contributions received from over 100 IMF members, including many low-income countries.
Multilateral Debt Relief Initiative (MDRI). Debt relief under the MDRI of IDA and the African Development Bank would write off all outstanding debts at the completion point.
In total, Sudan’s external debt burden is expected to drop from around US $ 56 billion (163% of GDP) in NPV at the end of 2020 to US $ 6 billion (14% of GDP) once the completion point is reached. reached and with the participation of all creditors.
IMF and World Bank Arrears Clearance Operations
Arrears to IDA were cleared on March 26, 2021, using bridging funding provided by the United States, repaid with the proceeds of a development policy grant primarily funded by the Arrears Clearance Fund. ‘IDA set aside in IDA19.
Arrears to the African Development Bank Group were cleared on May 12, 2021, with bridging funding provided by the UK government and contributions from Sweden and Ireland. The UK bridging loan was repaid through the proceeds of a policy-based operating grant.
Arrears to the IMF were cleared on June 29, 2021, with the help of French government bridging financing, which the authorities repaid using early access under the new IMF financial arrangement.
The HIPC Initiative
In 1996, the World Bank and the IMF launched the HIPC Initiative to create a framework within which all creditors, including multilateral creditors, can provide debt relief to the poorest and most heavily indebted countries in the world. to ensure debt sustainability and thereby reduce the constraints on growth and poverty reduction imposed by the unsustainable debt service burden in these countries. To date, 38 HIPC eligible countries, including Sudan, have reached decision point, of which 36 have reached completion point.
Established in 2005, the goal of the MDRI is to further reduce the debt of eligible low-income countries and provide additional resources to help them achieve their development goals. Under the MDRI, three multilateral institutions – the World Bank’s IDA, the IMF and the African Development Fund – provide 100% relief on eligible debts to eligible countries when they reach maturity. HIPC Initiative completion point. Sudan will benefit from additional debt relief under the MDRI of the World Bank Group and the ADB Group, but it is not eligible for the debt relief under the IMF’s MDRI because Sudan has no loans eligible under the current MDRI of the IMF. Sudan, however, should be considered by the IMF for “beyond the HIPC Initiative” debt relief, as has been done in the case of Liberia and Somalia, which would amount to 100 percent debt relief. cent on eligible IMF debt.
The Boards of Directors of IDA and IMF met on June 28, 2021; the decisions of the IMF Executive Board came into effect on June 29, 2021.