Debt relief initiatives

The HIPC Initiative

A girl from Zambia selling fruit

In 1996, at the instigation of the G7 countries, the World Bank and the International Monetary Fund (IMF) adopted an initiative to reduce the debt burden faced by heavily indebted poor countries (HIPC). This HIPC Initiative provided a chance, for the first time, to take coordinated action on debt relief.

In addition to bilateral debt cancellation, granted particularly by Paris Club creditor countries, the HIPC initiative also provides for multilateral debt relief by international financial institutions such as the World Bank and the IMF – though only to the extent necessary to restore a sustainable level of debt. This debt sustainability level is calculated individually for each debtor country.

The HIPC Initiative is designed to reduce poverty. Thus, for a developing country to be granted debt relief, it has to draw up poverty reduction programmes, make implementing them a priority, and show for a certain period that they are indeed being implemented. Another condition is that the funds released as a result of debt relief are used directly to reduce poverty.

Deadline extended

Initially, the HIPC Initiative was scheduled to run to the end of 2006. It was expected that heavily indebted countries would have met the conditions for participation by that time. But not all of them managed to do this – political instability, domestic conflicts and deteriorating economic conditions caused delays for some countries. In accordance with a decision by the IMF and the World Bank, the HIPC Initiative and the Multilateral Debt Relief Initiative have remained open to these countries, provided they had satisfied the end-2004 and end-2010 eligibility criteria.

This also applies for countries that may only be assessed to have met these criteria in the future, based on improved data that has become available. This rule was applied to Afghanistan, for example, which was accepted into the Initiative in July 2007.

The participants in the HIPC Initiative

The World Bank categorised 39 countries as heavily indebted poor countries: Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Côte d'Ivoire, Democratic Republic of the Congo, Republic of the Congo, Eritrea, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda and Zambia.

Debt relief has already been granted to 36 countries. Eritrea, Somalia and Sudan have not yet qualified for debt relief. They have not yet reached what is called the HIPC Initiative Decision Point.

Nearly 77 billion dollars' worth of debt cancelled

The volume of debt relief granted through the HIPC Initiative so far is 76.9 billion US dollars (end of 2015).

This includes commercial debts that have passed to governments of individual creditor countries, for example as a result of government guarantees, debts from official bilateral development cooperation and, to a limited extent, debts owed to the World Bank, the International Monetary Fund, regional development banks and many smaller multilateral organisations.

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