- Only a few years after ending its brutal civil war, Sierra Leone has gained so much trust among creditors for its economic policies that the dominant "Paris Club" of nations today decided to cancel 100 percent of the country's debts. Sierra Leone still ranges among the world's 2-3 poorest countries.
The decision to cancel the entire debt of Sierra Leone was taken today by the "Paris Club" countries, an informal group uniting the creditor governments from almost all major industrialised countries. At a Paris meeting with Sierra Leone's Minister of Finance, John Benjamin, a total debt cancellation was agreed upon.
According to a statement by the Paris Club, the creditor grouping decided to cancel first US$ 218 million, that is to say 91 percent of the debt stock at end-2006. This, according to the statement, represents "the Paris Club's share of the effort in the framework of the enhanced HIPC Initiative" - the Heavily Indebted Poor Countries initiative.
Further, the grouping said, "some creditors also committed on a bilateral basis to grant additional debt relief of US$ 22 million to Sierra Leone."
A 91 percent debt relief normally is the maximum granted by the Paris Club, but with bilateral cancellations, an exception was made for Sierra Leone. "As a result of this agreement and additional bilateral assistance, Sierra Leone's debt to Paris Club creditors will be entirely cancelled," the statement concluded.
The debt cancellation came after Sierra Leone had reached the so-called "completion point" under the enhanced HIPC Initiative on 15 December 2006. This means that the Freetown government had complied with all economic reform prescriptions given by the World Bank and the IMF, thus declared a "healthy" economy, dedicated to fight poverty, and as such a country worthwhile giving debt relief. So far only around 19 countries have qualified for full HIPC debt relief.
The Paris Club creditors therefore also welcomed "Sierra Leone's determination to implement a comprehensive poverty reduction strategy and an ambitious economic programme providing the basis for sustainable economic growth." The total debt cancellation had come as "a contribution to restoring Sierra Leone's debt sustainability," the statement noted.
Sierra Leonean Minister Benjamin during the meeting had committed his government to allocate the resources freed by the debt cancellation to priority areas identified in the country's poverty reduction strategy. Further, Mr Benjamin had promised to "seek comparable treatment" from all other external creditors.
Sierra Leone's public external debt was estimated to be US$ 1,573 million in nominal value at end-December 2005, according to documents from the IMF and the World Bank. With the Paris Club debt cancellation and IMF approval, Freetown authorities are expected to have a very good chance at achieving similar treatment from remaining creditors.
Especially the World Bank as until now had been hesitant to cancel the debts of one of its poorest clients. Equally, the totally impoverished neighbouring countries of Guinea-Bissau, Guinea and Liberia are lagging far behind in the Bank's queue for debt relief, despite being among the world's poorest nations and in need of post-conflict assistance. The Sierra Leone example of total obedience to IMF reform prescriptions may however now prove an inspiration to these neighbours.
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