BRIEF

Heavily Indebted Poor Country (HIPC) Initiative

October 10, 2016


Relieving the World's Poorest Countries of Unmanageable Debt Burdens
  • As of the most recent annual report, the HIPC and related Multilateral Debt Relief Initiative (MDRI) programs have relieved 36 participating countries of $99 billion in debt.
  • To date, 36 countries – 30 of them in Africa – have received the full amount of debt-relief for which they were eligible through HIPC and the MDRI.
  • But challenges remain to ensure that debt burdens do not return to unsustainable levels.

The World Bank, the International Monetary Fund (IMF) and other multilateral, bilateral and commercial creditors began the Heavily Indebted Poor Country (HIPC) Initiative in 1996. The structured program was designed to ensure that the poorest countries in the world are not overwhelmed by unmanageable or unsustainable debt burdens. It reduces the debt of countries meeting strict criteria. As of the most recent annual report, the HIPC and related Multilateral Debt Relief Initiative (MDRI) programs have relieved 36 participating countries of $99 billion in debt.

A comprehensive review of the program in 1999 led to enhancements, including the adjustment downward of the debt-burden thresholds that enabled a broader group of countries to qualify for debt relief. In addition, a number of creditors, including the main multilaterals, started to provide earlier assistance to qualifying countries in the form of interim relief at decision point. Finally, the “floating completion point” was introduced, providing incentives to speed up reforms and increase countries’ ownership.

Thirty-nine countries are currently eligible for HIPC debt relief. Countries eligible for assistance through HIPC pass through two milestones. The first is the “decision point,” at which the World Bank and the 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.

To date, 36 countries – 30 of them in Africa – have received the full amount of debt-relief for which they were eligible through HIPC and the MDRI.

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

Interim Countries (None): These countries are between the decision point and the completion point; it has received some debt relief, but has not finished the program.

Eritrea, Somalia and Sudan are potentially eligible for debt relief, but have not yet started the process.

Pre-Decision-Point Countries (3): These countries either have not met the decision-point qualifications or have not taken steps to enter the process, often because of ongoing conflict.

Eritrea

Somalia

Sudan

As the HIPC program has matured, the international community has focused on strengthening the links between debt relief and poverty-reduction efforts. Debt relief is linked to countries' progress in implementing Poverty Reduction Strategies (PRS) and macroeconomic and structural reform programs. Consequently, debt relief has delivered financial benefits while strengthening countries’ reform efforts.

Challenges remain to ensure that debt burdens do not return to unsustainable levels, however. These include:

  • Establishing a track record of reform in the remaining three countries potentially eligible for HIPC; some of these countries are affected by conflict, and this has led to problems of protracted external arrears.
  • Strengthening management of debt and public finances in all countries.
  • Ensuring full participation by creditors.

Beyond debt relief, long-term debt sustainability requires efforts by borrowers, lenders, and donors to promote prudent borrowing, suitably concessional finance, sustained economic growth, diversified exports, and greater access to markets in developed countries.