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HIPC Initiative
Taking stock of the HIPC Initiative
| Progress (number of countries) | Countries |
|---|---|
| Completion point (26) | Benin, Bolivia, Burkina-Faso, Burundi, Cameroon, Central African Republic, Ethiopia, Gambia, Ghana, Guyana, Haiti, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Tanzania, Uganda, Zambia |
| Between decision point and completion point (9) | Afghanistan, Chad, Côte d’Ivoire, Republic of the Congo, Democratic Republic of Congo, Guinea, Guinea-Bissau, Liberia, Togo |
| Pre-decision-point (5) | Comoros, Eritrea, Kyrgyzstan, Somalia, Sudan |
| Countries not wishing to participate (4) | Bhutan, Laos, Nepal, Sri Lanka |
By July 2009, 35 of the 40 countries eligible for the HIPC Initiative had reached decision point, and 26 of these have now reached completion point and have been granted comprehensive debt relief. The nine 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 below 7 per cent in 2000 to 9 per cent of GDP in 2006. 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 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 sue the countries concerned in order to maximise repayments through the courts.
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 debt 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 and they can achieve higher earnings.
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 2008, 4.7 billion euros of that amount had already been cancelled. By the time the Initiative ends, almost all HIPCs should then be debt-free vis-à-vis the Federal Republic of Germany.
On top of that, Germany is compensating the African Development Fund (AfDF) and the International Development Association (IDA), the World Bank’s concessional lending arm, for unpaid debt repayments. By the end of 2007 it had pledged a total of 165.5 million euros for the World Bank’s 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 HIPC Trust Fund through the European Union, which is supporting the Fund to the tune of 934 million euros. The German Bundesbank has made available an interest-free loan of 300 million euros to the International Monetary Fund (IMF) to finance the IMF’s share in the initiative.
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