BRIEF

Debt Relief - Overview

September 15, 2017

Countries Receiving Debt Relief: Green = Post-completion point | Red = Pre-decision point

World Bank Group

Multilateral and Private Creditor Debt Relief
  • The Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) are comprehensive approaches to reducing the external public debt of qualifying countries.
  • Thirty-Six of the 39 countries eligible for debt relief under HIPC and MDRI have graduated from the programs.
  • The Debt Reduction Facility (DRF) for IDA-only countries is an instrument that provides incentive for commercial creditors to participate in the debt relief initiative.

The World Bank, in partnership with the International Monetary Fund (IMF) and the international community, works with countries in a very structured format to reduce their debt burdens. This, in turn, frees up space in the countries' budgets to focus on important government functions, such as reducing poverty and meeting the Millennium Development Goals, a world-wide initiative that encourages countries to progress toward benchmarks in education, health, poverty-reduction and other development standards. Countries that qualify for debt relief need to meet strict criteria, including income status and compliance with recommended policy reforms.

The World Bank's debt relief work is divided into two main categories:

1. The Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) are comprehensive approaches to reducing the external public debt of qualifying countries. To qualify, these countries must pursue macroeconomic and structural reform programs and have implemented a poverty reduction strategy. The objective of the HIPC initiative is to bring countries’ debt to sustainable levels by offering relief on eligible debt held by multilateral, bilateral and commercial creditors.

Countries graduating from the HIPC Initiative process also benefit from full cancellation of eligible debt from the World Bank's International Development Association (IDA), the IMF, the African Development Fund and the Inter-American Development Fund under the MDRI, a second debt-relief program launched in 2006. The MDRI was also designed to help qualifying countries make progress toward the UN's Millennium Development Goals.

Countries eligible for assistance through HIPC pass through two milestones. The first is the "decision point," at which the World Bank and IMF formally determine whether the country is eligible for debt relief. Countries at this point have met stringent qualifications, including income thresholds. The international community commits to a level of debt relief, and the country may begin receiving debt relief at this point.

The second milestone is the "completion point," at which countries receive the balance of the debt relief that the international community committed to at the decision point. This is when they graduate from the program. To reach this point, the countries must have achieved certain reforms and taken concrete steps to reduce poverty.

Post-Completion-Point Countries (36): These countries have received the full amount of debt relief for which they are eligible under HIPC and MDRI.

Afghanistan

Central African Republic

Ethiopia

Haiti

Mauritania

Senegal

Benin

Chad

The Gambia

Honduras

Mozambique

Sierra Leone

Bolivia

Comoros

Ghana

Liberia

Nicaragua

Tanzania

Burkina Faso

Republic of Congo

Guinea

Madagascar

Niger

Togo

Burundi

Democratic Republic of Congo

Guinea-Bissau

Malawi

Rwanda

Uganda

Cameroon

Cote d’Ivoire

Guyana

Mali

Sao Tome & Principe

Zambia

2. The Debt Reduction Facility (DRF) for IDA-only countries funds the second form of debt-relief work conducted by the World Bank. It is an instrument that provides incentive for commercial creditors to participate in the debt relief initiative. Established by the Boards of IBRD and IDA in July 1989, it provides grant funding to eligible governments to buy back -- at a deep discount -- the debts owed to external, commercial creditors. Since its inception, the DRF has played a significant role in extinguishing commercial external debt from the books of low-income countries. It has supported 25 completed buy-back operations in 22 IDA-only countries, extinguishing about US$10.3 billion of external commercial debt principal and more than US$3.5 billion of associated interest arrears and penalties. Since 1989, the DRF has supported operations and provided technical assistance to 18 countries that are part of the HIPC Initiative. By reducing sovereign debt burdens, the DRF encourages commercial creditors to bear their share of HIPC debt relief. It also helps reduce the risk of non-concessional creditors taking advantage of debt relief provided by IDA and other multilateral development banks under the Multilateral Debt Relief Initiative (MDRI). 


World Bank Group



The Benefits of Debt Relief