Heavily Indebted Poor Countries Initiative

H.E. Mr. Issa Kpara, Ambassador of Benin to Germany (left), and H.E. Dr. Saleh A. Al-Omair, Governing Board Chairman, concluded an agreement for debt relief under the Enhanced HIPC Initiative.

The Heavily Indebted Poor Countries (HIPC) Initiative is the first international response to provide comprehensive debt relief to the world's poorest, most heavily indebted countries. It was launched by the World Bank and the IMF in September 1996.

The HIPC Initiative broke new ground by removing the debt overhang for countries that pursue economic and social reform targeted at measurable poverty reduction; reducing multilateral debt; and helping countries exit from endless debt restructuring to lasting debt relief.

Despite steady progress, by late 1998 a consensus had emerged for a major expansion of the HIPC Initiative. Toward that end, the World Bank and the IMF led a global consultative review with NGOs, churches and a wide spectrum of civil society. As a result, the international community endorsed three key enhancements: 1) deeper and broader debt relief: external debt servicing would be cut by approximately $50 billion, more than twice the relief provided under the original framework. When completed, in combination with traditional debt relief, the Initiative would thus reduce by more than two-thirds the outstanding debt of more than 30 countries. 2) faster debt relief: most participating creditors would provide debt relief beginning immediately or soon after the decision point; and 3) a stronger link between relief and poverty reduction: freed-up resources would be used to support poverty-reduction strategies.

By the end of December 2001, 24 countries (20 in Africa, and four in Latin America) had qualified for debt relief under the HIPC Initiative, namely Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Tanzania, Uganda and Zambia. All have reached their decision point under the Enhanced HIPC Initiative and four of them (Bolivia, Mozambique, Tanzania and Uganda) have reached their completion point under the original HIPC Initiative.

For the 24 countries that have reached their decision point so far, the Enhanced HIPC Initiative is expected to: (i) reduce total debt stock by nearly 50%; (ii) cut the ratio of debt-to-GDP from under 60% to under 30%; (iii) lower debt service; and (iv) boost social spending.

The debt relief packages now in place for these countries will spare them some $36 billion in debt-service obligations, reduce their overall debt service requirements by one-third, or about $1.1 billion annually (during the 2001-2003 period), and cut the ratio of debt service-to-exports to about 8%.

During 2001, the Fund approved debt relief delivery within the framework of the Enhanced HIPC Initiative to nine countries, specifically Chad, The Gambia, Guinea, Guyana, Madagascar, Nicaragua, Niger, São Tomé and Príncipe and Zambia. The total amount of lending approved in 2001 for the benefit of these countries stood at $58.5 million. On a cumulative basis and as of the end of 2001, the Fund had approved debt relief operations for the benefit of 19 countries in Africa and Latin America. Relief was provided not only through new loans, but also through the re-scheduling of previous loans and the use of the Fund's re-flow facility. The amount of actual debt relief extended through new loans, together with the relief generated through re-scheduling of previous loans as well as use of the re-flow facility, totals $97.58 million. More debt relief is envisaged for some of the countries concerned.