HIPC Treatment Not Panacea - IMF, World Bank

The World Bank and International Monetary Fund (IMF) on Thursday said the Highly Indebted Poor Countries (HIPC) initiative is not the end to Ghana's economic woes.

Ghana would still need aid from external partners, "even at the completion stage of the initiative," Mr Peter Harrold, Country Director of the World Bank said in Accra.

Mr Harrold was addressing a meeting with financial and economic journalists to expand on the impact of the initiative on the country. At the meeting was Dr Girma Bergashaw, Resident Representative of the IMF.

"HIPC is meant to bring relief to the country. But we do not think it would do the trick. It is not a complete solution to Ghana's problems," Mr Harrold said. "We definitely anticipate some external assistance after the HIPC treatment."

Mr Harrold, however, said the country could be out of HIPC in four years and indicated that Ghana stands to benefit significantly from the treatment which has the potential of 15 months between decision point and completion point.

Decision point is the period when a country's track record is deemed "right" to qualify for interim debt relief and completion point when a country is found to have reached a debt sustainability point.

A document from the World Bank said Ghana is in a position to reach decision point quickly since it already has an interim poverty reduction strategy and has three years track record with the IMF. Mr Harrold said the Bank does not put up any prescriptions for HIPC but added: "it is important that a country needs to have an overall poverty reduction programme."

"The Bank and the IMF together with the government will soon convene a meeting to adopt a definite poverty programme into which the debt relief will be put. That indeed is the first step to agree on," he said.

Dr Bergashaw said the funds available to Ghana could be spread to develop areas such as employment, trade and industry, education and health. He, however, noted that such relief is not a write off. "It is a status that must be earned after government has showed a programme of what it intends to do with the money."

Dr Bergashaw said debt payment is reduced to enable the country have funds, which originally would have gone to donors, for poverty reduction activities. The two men agreed that the initiative would result in non-availability of fresh money as loans, but the country will benefit from grants.

"I cannot say if loans will be given to equal the monies that would be given as grants from donor partners," Mr Harrold added.

"International capital markets will no doubt be problematic. Yet, it must be noted that the basic criterion of accessing funds would be a company's track record over the years."

The two institutions could not give the full impact of the HIPC treatment but noted that the depreciation of the cedi resulting in the increase in external debt stock (in cedi terms) was a major setback to qualifying Ghana for HIPC.

"For instance the current 558 per cent debt to revenue ratio needs to be reduced by half, while debt to export ratio now at 250 instead of 150, would be halved under HIPC".

Dr Bergashaw said the issue of divestiture is not directly related to the HIPC treatment, though the poverty reduction programme to be drawn up might include the proper functioning of state enterprises.