Treatment of the debt of Malawi

Paris Club creditors agreed on January 25, 2001 with the Government of the Republic of Malawi to a restructuring of its public external debt. Given its strong track-record of reforms as well as the burden of its external indebtedness, Malawi reached on December 21, 2000 its decision point under the enhanced HIPC Initiative and was granted an arrangement under the Poverty Reduction and Growth Facility with the International Monetary Fund.

This agreement consolidates maturities in principal and interest falling due from December 1, 2000 up to December 31, 2003 (of which about 67% is Official Development Assistance loans).

The agreement is concluded under the so-called "Cologne terms" designed by Paris Club creditors for the implementation of the enhanced HIPC Initiative : pre-cut off date ODA credits are to be repaid over 40 years, with 16 years of grace, at interest rates at least as favourable as the original concessional rates applying to those loans ; 90% of pre-cut off date commercial credits falling due after decision point are cancelled ; the remaining amounts are rescheduled over 23 years, with 6 years of grace, at market rates of interest.

This interim relief will lead to the immediate cancellation by Paris Club creditors of about US$ 19 million of Malawi's external debt, consistent with the implementation of the enhanced HIPC Initiative. These measures are expected to reduce debt service due to Paris Club creditors between December 1, 2000 and December 31, 2003 from around US$ 72 million down to around US$ 4 million. The remaining payments consist of interests on the rescheduled amounts and arrears as at November 30, 2000. Malawi is committed to use the resources freed by the present exceptional treatment of the debt on priority areas identified in the country's poverty reduction strategy.

The creditor countries expressed their readiness to reduce Malawi's stock of debt, as soon as Malawi reaches the completion point under the enhanced HIPC Initiative.