From Africa Recovery, Vol.11#3 (February 1998), Briefs page

Progress and snags in HIPC debt initiative

By Christina Katsouris

Burkina Faso is the second African country to get a debt reduction package under the Heavily Indebted Poor Countries Initiative (HIPC). The deal, finalized in early November 1997, will reduce its foreign debt by around $115 mn by April 2000. But policy conditionalities and disagreements over funding have slowed progress on Côte d'Ivoire and Mozambique.

Burkina's debt-to-exports ratio is set to fall to 205 per cent from the 250 per cent projected for 2000. Its nominal debt was over $1.2 bn at the end of 1996, and nominal debt relief will amount to some $200 mn. In net present value (NPV), Burkina's debt stood at $680 mn, while export earnings averaged $285 mn in 1994-96.

The government chose this IMF-recommended package over an alternative which offered an earlier date (September 1999) for actual debt reduction. But the latter -- backed by the World Bank -- set a higher target debt-to-export ratio of 210 per cent, translated into slightly less relief at $109 mn.

When the HIPC initiative was first unveiled in 1996, there were doubts that Burkina would qualify: the IMF's first tentative assessment of the 41 HIPC countries classified Burkina's debt as "sustainable." Burkina's projected 250 per cent ratio was on the cusp of the IMF/World Bank's parameters for "sustainability" -- then defined as an NPV debt-to-export ratio of 200-250 per cent or below, or a debt service ratio of 20-25 per cent or below. But Burkina eventually qualified due to its vulnerability to commodity price fluctuations and other external shocks. Once creditors accepted the case in principle, they debated what target debt-to-export ratio to set. Some favoured 225 per cent, but those for a ratio of 205-210 per cent won the day.

Meanwhile Côte d'Ivoire and Mozambique are expected to sign the next HIPC deals before April. At time of writing, Côte d'Ivoire was waiting to conclude an enhanced structural adjustment facility with the IMF -- a precondition for a HIPC deal -- before its debt agreement could be finalized.

Mozambique's deal has proved more complicated, mainly because the amount of debt reduction needed exceeds what some creditors were willing to pay. To achieve a sustainable debt ratio of 200 per cent in 1999, creditors would need to provide relief of $1,479 mn in NPV terms. Current burden-sharing arrangements -- each creditor acts according to how much it is owed -- would require $533 mn from multilateral creditors and $946 mn from bilaterals.

But this amount, bilateral creditors initially argued, would exceed the Paris Club's 80 per cent ceiling for reducing eligible bilateral debt. At the urging of the IMF and World Bank, however, the Paris Club on 21 January implicitly agreed to exceed that ceiling. It did so by promising the 80 per cent specified in the HIPC deal, plus $170 mn in foreign aid. This still leaves about $100 mn, which the Paris Club wants the multilaterals to pay.

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