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The heavily indebted poor countries (HIPC) are a group of 39
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
with high levels of
poverty Poverty is the state of having few material possessions or little income. Poverty can have diverse
and debt overhang which are eligible for special assistance from the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) and the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
. The HIPC Initiative was initiated by the International Monetary Fund and the World Bank in 1996, following extensive lobbying by
NGOs A non-governmental organization (NGO) or non-governmental organisation (see spelling differences) is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in ...
and other bodies. It provides
debt relief Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. From antiquity through the 19th century, it refers to domestic debts, in particu ...
and low-interest loans to cancel or reduce external debt repayments to sustainable levels, meaning they can repay debts in a timely fashion in the future."Developing Countries: Status Of The Heavily Indebted Poor Countries Debt Relief Initiative: NSIAD-98-229." ''GAO Reports'' (1998): 1. ''MasterFILE Premier''. Web. 10 Sept. 2015. To be considered for the initiative, countries must face an unsustainable debt burden which cannot be managed with traditional means. Assistance is conditional on the national governments of these countries meeting a range of economic management and performance targets and undertaking economic and social reforms.


Countries

The 37 countries that have so far received full or partial debt relief are:Factsheet: Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative
- The IMF - accessed December 29, 2021
"Heavily Indebted Poor Countries,"
World Bank, January 11, 2018. Accessed: December 29, 2021.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 37 countries have completed the program and had their external debt cancelled in full, after Somalia passed the Completion Point in 2020. An additional two countries (
Eritrea Eritrea ( ; ti, ኤርትራ, Ertra, ; ar, إرتريا, ʾIritriyā), officially the State of Eritrea, is a country in the Horn of Africa region of Eastern Africa, with its capital and largest city at Asmara. It is bordered by Ethiopi ...
and
Sudan Sudan ( or ; ar, السودان, as-Sūdān, officially the Republic of the Sudan ( ar, جمهورية السودان, link=no, Jumhūriyyat as-Sūdān), is a country in Northeast Africa. It shares borders with the Central African Republic t ...
) are being considered for entry into the program as of March 2020. On its meeting on 28 June 2021 the IMF's executive board approved a financing plan to help mobilize resources needed for the fund to cover its share of debt relief to Sudan. This occurred after Sudan's civilian-led transitional government and its cabinet led by
Abdalla Hamdok Abdalla Hamdok Al-Kinani (also transliterated ''Abdallah'', ''Hamdouk'', '' AlKinani''; ar, عبدالله حمدوك الكناني; born 1 January 1956) is a Sudanese public administrator who served as the 15th Prime Minister of Sudan from 20 ...
implemented tough economic reforms to reach the decision point.


Requirements

To receive debt relief under HIPC, a country must first meet HIPC's threshold requirements. At HIPC's inception in 1996, the primary threshold requirement was that the country's debt remains at unsustainable levels despite full application of traditional, bilateral debt relief. At the time, HIPC considered debt unsustainable when the ratio of debt-to-exports exceeded 200-250% or when the ratio of debt-to-government revenues exceeded 280%.E. Carrasco, C. McClellan, & J. Ro (2007), "Foreign Debt: Forgiveness and Repudiation" University of Iowa Center for International Finance and Development E-Book


Funding

The IMF estimates that the total cost of providing debt relief to the 40 countries currently eligible for the HIPC program would be around $71 billion (in 2007 dollars). Half of the funding is provided by the IMF, World Bank, and other multilateral organizations, while the other half is provided by the creditor countries. The IMF's share of the cost is currently being funded by the proceeds of gold sales by the organization in 1999, but it estimated that this will not be enough to cover the full cost, and further funding will need to be raised if additional countries such as Sudan and Somalia meet the qualification requirements for entry into the program.


Criticism

Critics soon began to attack HIPC's scope and its structure. First, they criticized HIPC's definition of debt sustainability, arguing that the debt-to-export and debt-to-government-revenues criteria were arbitrary and too restrictive. As evidence, critics highlighted that, by 1999, only four countries had received any debt relief under HIPC. Second, the six-year program was too long and too inflexible to meet the individual needs of debtor nations. Third, the IMF and the World Bank did not cancel any debt until the completion point, leaving countries under the burden of their debt payments while they struggled to institute
structural reforms Structural adjustment programs (SAPs) consist of loans (structural adjustment loans; SALs) provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experience economic crises. Their purpose is to adjust the coun ...
. Fourth, the ESAF conditions often undermined poverty-reduction efforts. For example,
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
of utilities tended to raise the cost of services beyond the citizens' ability to pay. Finally, critics attacked HIPC as a program designed by creditors to protect creditor interests, leaving countries with unsustainable debt burdens even upon reaching the decision point. Inadequate debt relief for such countries means that they will need to spend more on servicing debts, rather than on actively investing in programs that can reduce poverty. In 2008, some analysts showed that the HIPC initiative had failed, and failed miserably. One aspect behind the failure, according to the Nigerien journalist Moussa Tchangari:


Response to the criticism

HIPC addressed its shortcomings by expanding its definition of unsustainable debts, making greater relief available to more countries, and by making relief available sooner. Since 1996, the IMF has modified HIPC in several ways, often in response to the shortcomings its critics have highlighted. The IMF first restructured HIPC in 1999. These revisions modified HIPC's threshold requirements. Today, HIPC defines three minimum requirements for participation in the program. First, as before, a country must show its debt is unsustainable; however, the targets for determining sustainability decreased to a debt-to-export ratio of 150% and a debt-to-government-revenues ratio of 250%. Second, the country must be sufficiently poor to qualify for loans from the World Bank's
International Development Association The International Development Association (IDA) (french: link=no, Association internationale de développement) is an international financial institution which offers concessional loans and grants to the world's poorest developing countries. ...
or the IMF's
Poverty Reduction and Growth Facility The Poverty Reduction and Growth Facility (PRGF) is an arm of the International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered ...
(PRGF, the successor to ESAF), which provide long-term, interest-free loans to the world's poorest nations. Lastly, the country must establish a track record of reforms to help prevent future debt crises. In addition to the modified threshold requirements, the 1999 revisions introduced several other changes. First, the six-year structure was abandoned and replaced by a "floating completion point" that allows countries to progress towards completion in less than six years. Second, the revised HIPC allows for interim debt relief so that countries begin to see partial relief before reaching the completion point. Third, the PRGF heavily modified ESAF by curtailing the number and detail of IMF conditions and by encouraging greater input from the local community into the program's design. One of PRGF's goals is to ensure that impoverished nations re-channel the government funds freed from debt repayment into poverty-reduction programs. To that end, each country's PRGF program is modeled around a Poverty Reduction Strategy Paper (PRSP). PRSPs describe the macroeconomic, structural, and social programs that a country will follow to promote economic growth and reduce poverty. A broad range of government, NGO, and civil-society groups must participate in the development of the PRSP to ensure the plan has local support. Under the revised HIPC, a country reaches the decision point once it has demonstrated progress in following its PRSP. The country then reaches its completion point once it has implemented and followed its PRSP for at least one year and has demonstrated macroeconomic stability. In 2001, the IMF introduced another tool to increase HIPC's effectiveness. Under the new practice of "topping up," countries that unexpectedly suffer economic setbacks after the decision point due to external factors, such as rising interest rates or falling commodity prices, are eligible for increased debt forgiveness above the decision-point level. Further progress towards debt relief was announced on December 21, 2005, when the IMF granted preliminary approval to an initial debt relief measure of US $3.3 billion for 19 of the world's poorest countries, with the World Bank expected to write off the larger debts owed to it by 17 HIPCs in mid-2006." As of December 2006, twenty-one countries have reached the HIPC completion point. Nine additional countries have passed the decision point and are working toward completion. Ten other countries carry unsustainable debts according to HIPC standards, but they have yet to reach the decision point. So far, the IMF and World Bank have approved $35 billion of HIPC debt relief. Five countries have received an additional $1.6 billion in "topping up" assistance since 2001.


See also

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Central Emergency Response Fund The Central Emergency Response Fund (, CERF/FCIU) is a humanitarian fund established by the United Nations General Assembly on December 15, 2005 and launched in March 2006. With CERF’s objectives to 1) promote early action and response to redu ...
*
List of countries by percentage of population living in poverty Countries by percentage of population living in poverty, as recorded by World Bank and other sources. Methodology "Poverty" is defined as an economic condition by the lack of both money and basic necessities needed to live successfully, suc ...
*
Multilateral Debt Relief Initiative Multilateral Debt Relief Initiative (MDRI) was approved on June, 2005, by the finance ministers of the G8 during the 31st G8 Summit, held at Gleneagles, Scotland. MDRI is different to HIPC, but operationally related. Countries in the termination p ...
(MDRI) *
Millennium Development Goals The Millennium Development Goals (MDGs) were eight international development goals for the year 2015 that had been established following the Millennium Summit of the United Nations in 2000, following the adoption of the United Nations Millenn ...
* Odious debt *
Government debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...


References


External links


Oxfam
* ttps://web.archive.org/web/20060921172155/http://www.uiowa.edu/ifdebook/faq/faq_docs/HIPC.shtml HIPC InitiativeUniversity of Iowa Center for International Finance & Development. {{Global economic classifications International development Third World debt cancellation activism Measurements and definitions of poverty Economic country classifications