HIPC Initiative

Taking stock of the HIPC Initiative

The 40 highly indebted countries (HIPC) and their progress within the HIPC Initiative
Progress (number of countries) Countries
Completion point (32) Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Democratic Republic of the Congo (Zaire), Republic of the Congo, Ethiopia, Gambia, Ghana, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, Zambia
Between decision point and completion point (4) Côte d’Ivoire, Guinea, Comoros, Chad
Pre-decision-point (3) Eritrea, Somalia, Sudan
Countries not wishing to participate (4) Bhutan, Kyrgyzstan, Laos, Nepal

By January 2012, 36 of the 39 countries eligible for the HIPC Initiative had reached decision point, and 32 of these have now reached completion point and have been granted comprehensive debt relief. The four countries between decision point and completion point are receiving initial interim relief, especially partial relief on annual debt service payments.

The significant rise in social spending by post-decision-point countries is an indication that debt relief can make an important contribution to reducing poverty. In the countries that had received debt relief, social spending rose from 6.2 per cent in 2001 to more than 9 per cent of GDP in 2009.

In Tanzania, for example, the government abolished primary school fees, built 2,500 new schools and employed 28,000 new teachers. The school enrolment rate in Tanzania rose from 57 per cent in 2000 to 95 per cent in 2005. Zambia and Uganda used the funds for spending in the health sector and abolished charges for primary health care. In Uganda, demand for health services doubled as a result and the number of vaccinations also increased significantly.

In order to bring further debt relief for these countries, the World Bank and the IMF are endeavouring to persuade bilateral creditors who are not members of the Paris Club, and commercial creditors of the highly indebted poor countries to take part in the debt relief initiative.

A particular challenge is posed by private funds which buy up HIPC debt and then aggressively sue the countries concerned in order to maximise repayments through the courts. The Republic of the Congo alone has presented the Paris Club with a list of 170 pending lawsuits against the country. According to figures from the World Bank, in 2009 the funds sued for the recovery of repayments, debt interest and penalty interest of around 1.1 billion US dollars – for original claims of some 520 million US dollars. With the Debt Reduction Facility (DRF) which was set up in 1989, the World Bank is helping highly indebted countries to clear themselves of any debt owed to these private funds. To date, a total of some 10 billion US dollars has been made available for 25 cases in 21 countries.

A definitive solution to the debt problem cannot be achieved through the HIPC Initiative alone. A country can be said to have a sustainable debt position only when it is able to service, over the long term and using its own resources, the external borrowing it requires for its de­vel­op­ment. To achieve that, a number of other measures are necessary, for example better terms of trade for poor countries so that their exports are competitive in the in­ter­na­ti­o­nal marketplace.

The German contribution to the HIPC Initiative

Under the enhanced HIPC Initiative Germany is cancelling all reschedulable commercial debt and all debt arising from Financial Co­op­er­a­tion. Altogether, debt relief will total up to 7.1 billion euros. By June 2010, around 4.8 billion euros of that amount had been cancelled. By the time the Initiative ends, almost all HIPCs should then be debt-free vis-à-vis the Federal Republic.

On top of that, Germany is compensating the African De­vel­op­ment Fund (ADF) and the In­ter­na­ti­o­nal De­vel­op­ment Association (IDA), the World Bank’s concessional lending arm, for unpaid debt repayments and has already paid out a total of 165.5 million euros for the World Bank’s Debt Relief Trust Fund (DRTF) (formerly the HIPC Trust Fund). The Trust Fund helps smaller multilateral financial institutions in particular to finance their share of the HIPC debt cancellation initiative. Germany is also financing the Trust Fund through the European Union, which is supporting the Fund to the tune of 934 million euros in total. Furthermore, the German Bundesbank has made available an interest-free loan of 300 million euros to the In­ter­na­ti­o­nal Monetary Fund to finance the IMF’s share in the initiative.

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