Malawi Reaches Completion Point under HIPC Initiative
Obtains major debt relief from the ADB
Tunis, 15 November 2006 –The Boards of Directors of the African Development Bank (ADB) and the African Development Fund (ADF) today agreed that Malawi had effectively met the conditions and reached the completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative.
The Bank Group’s share of debt relief will amount to US$ 70.5 million at 1999 Net Present Value terms (US$ 108.89 million in nominal terms), which is equivalent to about 14.6 percent of the multilateral creditors’ assistance.
Malawi also qualified for additional debt relief (topping-up) at completion point in the light of exogenous factors resulting in the deterioration of its debt-burden indicators: drought during the 2004/2005 growing season, lower than projected export receipts, fixed interest rates on borrowed capital, depreciation of the US dollar against the Special Drawing Right (the bulk of Malawi’s debt, about 67%, is denominated in SDR), lower than expected concessionality of new loans, increase in import prices.
In view of these circumstances, the Boards of Directors of the Bank Group approved an additional assistance (topping-up) of US$ 68.8 million at 2005 NPV (US$ 132.77 million in nominal terms).
This total debt relief assistance of US$ 139.3 million in NPV would relieve Malawi of up to 80 percent of its debt-service obligation to the Bank each year until January 2024, when the total debt relief would have been delivered.
To reach completion point, the government had to fulfill three key conditions:
- Preparation of a full Poverty Reduction Strategy Paper and satisfactory implementation for at least one year;
- Maintenance of a stable macroeconomic environment;
- Implementation of key structural and governance triggers to strengthen public expenditure management and improve the quality of education and health care, fight HIV/AIDS, strengthen land and credit markets, and create an effective safety net system.
The Boards of the ADB and ADF noted that Malawi Poverty Reduction Strategy implementation had been broadly satisfactory with progress made in the priority areas of agriculture, education, health, public expenditure management, public sector reforms and prevention of corruption.
Malawi is the 16th Regional Member Country of the African Development Bank to reach the enhanced HIPC Initiative completion point. This makes Malawi eligible for additional debt cancellation from IMF, World Bank (IDA) and the ADF under the Multilateral Debt Relief Initiative (MDRI). With the approval of the topping up, the total debt relief under MDRI amounts to US$ 1.47 billion in nominal terms spread over 50 years, with the Bank Group’s portion being US$ 253 million.
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