IDA-only Debt Reduction Facility Project Finance and Guarantees Group The World Bank
Objective of the Presentation u Overview of the IDA-only Debt Reduction Facility (“Facility”) u Overview of the requirements and procedures involved. u How can the Facility assist a country?
Content of this Presentation u Definition and purpose. u What countries qualify for support. u What debt is eligible. u Characteristics of an operation. u Overview of completed operations. u Financing. u Procedures.
Definition and Purpose u Established in 1989, as a mechanism to assist IDA-only countries in reducing their external commercial debt. u Funds provided as grants: – Technical Assistance for hiring advisors and – Finance the operation. u Facility is funded with transfers from IBRD’s net income. (US$350 million)
Countries eligible. u Highly indebted IDA-only countries u A medium term adjustment program. u A comprehensive strategy for debt management: – addresses the commercial debt comprehensively – provides substantial relief from official bilateral creditors. – enhances country’s growth and development.
What debt is eligible. u all publicly guaranteed uninsured medium and long-term commercial debt in arrears u all publicly guaranteed uninsured shortterm debt (trade financing, suppliers credit and overdrafts)
Debt that is not eligible u Paris Club debt. u Bilateral debt (Government to Government) u Third party Guarantee.
Characteristics of an operation. u Case by Case basis. u Deep discount. u Preferred option is a buy-back. u Interest and penalties extinguished. -back of principal only. ) u Comprehensive operation u Donor co-financing expected. (buy
Financing u IDA provides grants for Technical Assistance and/or to finance the operation. u Grants from bilateral sources are expected. u US$ 207 million obtained to date. u If necessary complementary resources can be obtained from IDA credits.
First Steps u Formal Request from the Government so that IDA can provided resources to hire Financial and Legal advisors. u Review the data base. u Set up a task team in the country consisting of Central Bank, MOF or others as the case may be.
Operations u Altogether 22 operations have been successfully completed. u A total of US$ 4. 5 billion of principal in commercial debt have been extinguished. u More than US$ 3. 5 billion of interest arrears and penalties have been extinguished.
General Characteristics u The price has fluctuated from 8 cents a dollar of principal to 26 cents a dollar of principal buy-back. u Acceptance level from 64% to 100%. u Grants provided from US$1. 3 million to US$97. 4 million. u Structure has included straight buy-back, discounted bonds, debt for development and debt-equity swaps.
Some Operations u Ethiopia – Buy-back that included dollar denominated Russian debt. u Mauritania – Buy-back that included debts from parastatal to parastatal companies (commercial nature) u Nicaragua – Buy-back of US$1. 3 billion of commercial bank debt. u Sao Tome & Principe – Buy-back which required only US$1 million of financing.
Some Operations u Senegal – included a discount bond option guarantee with zero-coupon bonds that could be used in the local economy (to pay taxes, privatization, etc. . ) u Zambia – more than 5, 000 creditors and pipeline debt. – included various options. (debt for development, buyback, discounted bonds)
General Procedure u u u Letter from the Government Requesting access to Facility resources. Define the amount of the Grant for TA and modalities. MOP to request the Grant from the Board. Grant agreement with the Government hires advisors through competitive bidding. (we provide draft TOR, contract and long list. )
General Procedure (cont) u u u Contracts with legal and financial advisors. (signed between the Government and advisors) Debt reconciliation process to determine the eligible amount. (issues of eligibility are addressed) Informal contacts with creditors to determine market expectations. (informal reports on specific finding) Formal Report from the advisors is discussed (should included strategy, price, threshold and issues pending) Strategy approved, financing determined and co-financing from donors identify and requested.
General Procedure (cont) u u u MOP to request Grant from the Board. (includes all eligible debt as well as commitments from donors) Grant agreement with the Government. Operation is launched in the market. (offering memorandum is distributed to creditors) Operation is closed (paid at the closing date specified in the offering memorandum) Auditors are hired and auditing report done. Closing report to the Board.
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