IMF, World Bank Back $1.2 Billion Debt Relief for Guinea-Bissau

Debt relief provides opportunity of new beginning for Guinea-Bissau

Milestone cuts present value of country's external debt by 87 percent

Lasting debt sustainability will depend on further reforms

The move will cut the West African country’s external debt by 87 percent.

The Executive Boards of the two institutions agreed that Guinea-Bissau had satisfied the requirements to reach the final stage, or completion point, of the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and therefore qualified for comprehensive debt relief from its external creditors. Having reached the completion point, Guinea-Bissau also qualifies for debt relief under the Multilateral Debt Relief Initiative (MDRI).

These actions will generate total debt service savings of $1.2 billion, consisting of $703 million in HIPC debt relief, $107.9 million in additional debt relief from the Paris Club group of creditors, $230.3 million in debt relief under topping-up assistance, and $139.2 million in debt relief under the MDRI.

Debt relief from the IMF and the World Bank totals $15 million and $347.2 million, respectively, with the remaining relief expected to come from bilateral, commercial, and other multilateral creditors. As a result, the present value of Guinea-Bissau’s external debt at end-2009 will be reduced by 87 percent (see chart).

“Guinea-Bissau has made significant progress in the last two years in strengthening macroeconomic policies and performance following a prolonged period of political instability,” said Paulo Drummond, IMF mission chief for Guinea-Bissau. “Reaching the HIPC completion point will help Guinea-Bissau further improve relations with its external creditors, move toward debt sustainability, and send a positive signal to donors and potential investors.”

A long road

The road to the HIPC completion point was long and difficult. Guinea-Bissau reached the interim HIPC decision point in 2000. However, political tensions and erratic macroeconomic policies, combined with fragile institutions and limited technical capacity, led to poor outcomes over the next several years.

The IMF helped build capacity with staff-monitored programs in 2006 and 2007 and provided Emergency Post-Conflict Assistance (EPCA) in 2008 and 2009. Solid performance under Guinea-Bissau’s 2009 EPCA-supported economic program helped to stabilize the economy and paved the way for approval, in May 2010, of a three-year Extended Credit Facility arrangement with the IMF...