The Central African Republic Reaches Decision Point under the Enhanced HIPC Debt Relief Initiative

Contacts

In Washington: Timothy Carrington (202) 473 8133

tcarrington@worldbank.org;

In Bangui:  Jelena Pantelic (236) 61 65 77

Jpantelic@worldbank.org

In N’Djamena: Edmond Dingamhoudou (235) 52 33 60

edingamhoudou@worldbank.org

WASHINGTON, September 28, 2007—The World Bank’s International Development Association (IDA) and the International Monetary Fund (IMF) have determined that the Central African Republic (C.A.R.) qualifies for debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and has reached the decision point under the Initiative. The Central African Republic becomes the 32^nd country to reach its decision point under the Initiative.

The Government of the C.A.R. will start receiving debt relief from certain creditorsimmediately, [1]   but in order to qualify for irrevocable debt relief at the completion point, the C.A.R. will be implementing a broad set of reforms. In particular, the C.A.R. is expected to continue to put into action an economic program supported by the IMF’s Poverty Reduction and Growth Facility (PRGF), finalize and implement a Poverty Reduction Strategy for at least one year, and implement key reforms aimed at improving public financial management, governance and transparency, especially in the growth-critical mining and forestry sectors.

In addition to HIPC debt relief, the C.A.R. will be eligible for Multilateral Debt Relief Initiative (MDRI) assistance when it reaches the HIPC completion point. This will further increase the resources available to the Government in order to reduce poverty.

Mr. Murilo Portugal, Deputy Managing Director of the IMF said: “Satisfactory implementation of the authorities’ PRGF-supported program has paved the way for the Central African Republic to reach the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The Central African Republic could reach its floating completion point under the Initiative following at least one year’s implementation of its Poverty Reduction Strategy (which is to be finalized shortly), continued satisfactory performance under the PRGF-supported program, and implementation of the other HIPC triggers. HIPC debt relief will help the Central African Republic achieve debt sustainability, but it will continue to need foreign assistance on highly concessional terms to finance development.”

Ms. Mary Barton-Dock, the World Bank Country Director for the Central African Republic, said: “HIPC debt relief is a major milestone in the C.A.R.’s re-engagement with the international community. It reflects the progress made on the reform process that is underway and is an important step in transitioning from conflict to growth. It will also enhance the government’s efforts to mobilize urgently needed additional resources to implement its ambitious poverty reduction strategy. A key opportunity in this regard would be the donor Round Table that is planned to be held in Brussels at the end of October.”

Specifics of the Debt Relief Operation

The C.A.R.’s public and publicly guaranteed  external debt was estimated at US$1.1 billion in nominal terms as of end-December 2006, equivalent to US$856 million in net present value (NPV) terms.[2]

Debt relief under the enhanced HIPC Initiative will be approximately US$583 million in NPV terms, equivalent to a 68.1 percent reduction beyond traditional debt relief provided by bilateral and commercial creditors. The nominal amount of HIPC debt relief is estimated at US$823 million.

IDA’s share of enhanced HIPC  assistance to C.A.R. amounts to US$209 million in NPV terms, including US$66 million already provided through the clearance of C.A.R.’s arrears in November 2006 on grant terms. Immediately following the approval of the decision point by the Boards of IDA and the IMF, IDA has begun to provide the remaining assistance (US$143 million). The IMF will provide HIPC assistance of US$27 million (equivalent to SDR 17.33 million) in NPV terms. Under the enhanced HIPC Initiative’s burden sharing approach, other creditors of C.A.R. will provide the remainder of the Initiative’s debt relief.

MDRI debt relief from IDA couldamount to US$75 million in NPV terms as of the decision point or approximately US$182 million over time, assuming that C.A.R. reaches its completion point by end-2009. The IMF’s debt relief under the MDRI is estimated at about US$1.6 million in nominal terms.

Note to Editors:

The Central African Republic is among the poorest countries in the world with a GNI per capita of US$360. The poverty rate is nearly 70 percent, and social indicators are extremely low, as reflected by the C.A.R. being ranked 172 out of 177 countries in the 2006 United Nations Human Development Index. The past decade was marked by recurrent mutinies and episodic conflict. Successful presidential and legislative elections took place in 2005, providing an opportunity for C.A.R. to overcome the cycle of conflict and poverty.

The HIPC Initiative

In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-service burdens in these countries. The Initiative was modified in 1999 to provide three key enhancements:

Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relief and some countries have become eligible for greater relief;

Faster Relief. A number of creditors began to provide interim debt relief immediately at the “decision point.” Also, the new framework permitted countries to reach the “completion point” faster; and

Stronger Link between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.

To date, 32 HIPC countries have reached their decision points, of which 22 have reached completion point.

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