IMF ratifies interim poverty reduction paper $25M annually in debt relief closer By Gitanjali Singh Stabroek News November 18, 2000 The IMF has ratified the second year annual arrangement for Guyana under the Poverty Reduction Growth Facility and Guyana's interim Poverty Reduction Strategy Paper (I-PRSP) which will pave the way for an additional US$25 million in debt relief for Guyana from next year. The IMF yesterday announced the approval which paves the way for Guyana to immediately drawn down on a US$9 million allocation--from US$23 million available in soft loans from the IMF--to support its economic programme for the October 1, 2000/September 30, 2001 fiscal year. "The IMF and the World Bank Group's International Development Association (IDA) have also agreed to support a comprehensive debt reduction package for Guyana under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative [also called Cologne Initiative]," the IMF said in a statement released yesterday. The Government of Guyana has welcomed the approval of its second year programme with the IMF as well as the clearing of the I-PRSP which are key to further debt relief for Guyana. "This approval makes Guyana eligible for additional debt relief totalling US$329 million in net present value (npv) terms or over US$25 million per annum in nominal terms for a period of 20 years...," a release from the Guyana Information Services said yesterday. However, it noted that before this relief could be forthcoming the government had to present its final PRSP to the IMF/World Bank in May of next year. And Cabinet Secretary, Dr Roger Luncheon, told reporters that consultation on a broadly accepted PRSP was to start immediately. Among the challenges the government will face in the coming months, prior to further debt relief, is finalising with the World Bank its plan on modernising the sugar industry which will be supported by the international community. "The authorities intend to modernise the government-owned sugar company to enable it to compete internationally, given the phasing out of preferential export markets. It is important that the modernisation plan be economically viable and technically sound," Deputy Managing Director of the IMF, Eduardo Aninat, said yesterday. The World Bank consultants who reviewed the US$200 million modernisation plan of the Guyana Sugar Corporation (GUYSUCO) had found it to be financially infeasible and had recommended a scaled-down version of the modernisation which included closure of the remaining Demerara Estates. However, the World Bank report at that time had not been finalised and it was not clear whether there had been changes to that position. The IMF had turned down a request for a waiver for GUYSUCO to borrow on commercial terms and the World Bank consultants had said that the scaled-down plan could be financed from internal resources, removing the need for concessional borrowing from international agencies. Aninat said two other structural reforms which the government had to undertake were to bring the Guyana National Cooperative Bank to the point of sale "soon" and privatise the two bauxite companies. The IMF statement quoted Aninat as saying that the authorities here were encouraged to remain steadfast in their two-pronged fiscal strategy to refrain from domestic borrowing and to improve public saving performance over the medium term, given the projected sharp decline in 2000. "Expenditure restraint in non-priority areas and a reduction in the ratio of the government wage bill to GDP over the medium term will be essential. The rationalisation of the civil service and the implementation of comprehensive civil service reform in the medium term will enable the authorities to undertake expenditure in priority areas such as health and education," Aninat said. He also stated that the government was urged to monitor fiscal developments closely and stand ready to take corrective fiscal actions if needed to achieve the programme's objectives. Aninat said Guyana had established a satisfactory track record in implementing a comprehensive programme of macroeconomic, structural and social reforms under the programme supported by the PRGF. He said that the IMF agreed that the Interim Poverty Reduction Strategy Paper (I-PRSP) provided a sound basis for the development of a full, participatory PRSP and for reaching the decision point under the enhanced HIPC initiative. The full PRSP, he said, will detail the government's plan to reduce the incidence of poverty and its plans regarding the delivery of essential services, especially in rural areas as well as monitor overall implementation and progress with the poverty reduction strategy. Aninat said it was important for Guyana's PRSP to garner broad ownership by civil society. "The fund agrees that Guyana has established a satisfactory track record of good economic performance in the context of IMF and World Bank-supported poverty reduction programmes to reach the decision point under the enhanced HIPC initiative. Guyana would reach the floating completion point after preparation of a PRSP developed through a participatory process, maintenance of a stable macroeconomic environment as evidenced by satisfactory performance under a programme supported by a PRGF arrangement and satisfactory implementation of key measures, particularly in the areas of health, education, poverty reduction and governance," Aninat stated. All policy undertakings in the interim PRSP beyond the first year will be subject to re-examination and modification, the IMF said. This will be in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under the PRGF arrangement," the statement said. Dr Luncheon indicated that the government will move to conclude the PRSP by May of next year. This will be key for Guyana to draw down on the US$25 million annually in debt relief under Cologne Terms. The aim of the Cologne Terms is to reduce the net present value of a country's debt burden to 150% of exports. The GIS statement said the PPP/Civic government had in the past focused on implementing policies with a poverty reduction bias and the increased budgetary allocations to poverty reduction programmes in health, education, water and housing in recent years were testimony to this. This, the GIS statement said, had led to a significant reduction in poverty in Guyana. Follow the goings-on in Guyana in Guyana Today