Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative
Overview
- Launched: 1996 by IMF and World Bank
- Purpose: Ensure no poor country faces unmanageable debt
- Supplement: In 2005, with the Multilateral Debt Relief Initiative for 100% relief by IMF, World Bank, African Development Fund
- Additional Relief: 2007 by Inter-American Development Bank for Western Hemisphere HIPCs
Participation Criteria
- Eligibility:
- Borrow from World Bank’s International Development Agency and IMF’s Poverty Reduction and Growth Trust
- Face an unsustainable debt burden not manageable through traditional relief
- Record of reform and sound policies
- Develop a Poverty Reduction Strategy Paper (PRSP)
- Process:
- Decision Point: IMF and World Bank decide eligibility
- Interim Relief: Provided post-decision
- Completion Point: Achieved by meeting additional criteria
Benefits of Debt Relief
- Development Aid: Targets low-income countries
- Spending Increase: Post-relief, spending on health and education increased significantly compared to pre-initiative levels
- Debt Service Reduction: Declined by 1.5% of GDP between 2001-2015
Funding
- IMF Funding: Bilateral contributions, IMF resources from 1999 gold sales
- Resource Shortfalls: Insufficient for Somalia and Sudan
- Financial Plans: Approved in 2019 and 2021 to aid these countries
Future Challenges
- Creditor Participation: Not all creditors provide full relief
- Encouragement: IMF and World Bank push for full participation
Country Status (As of January 2023)
- Post-Completion Point Countries (36):
- Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Republic of Congo, Democratic Republic of Congo, Côte d'Ivoire, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé & Príncipe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, Zambia
- Interim Countries (2): Somalia, Sudan
- Pre-Decision Point Countries (1): Eritrea
Conclusion
- Objective: Continue encouraging creditor participation for full relief
- Updated: February 2023
Note: The HIPC Initiative is voluntary for creditors.