The IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC) Initiative in 1996 to ensure that no poor country faces an unmanageable debt burden. In 2005, to accelerate progress toward the United Nations’ Sustainable Development Goals, the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative. This allows countries completing the HIPC Initiative process to receive 100 percent relief on eligible debts by the IMF, the World Bank, and the African Development Fund. In 2007, the Inter-American Development Bank provided additional (“beyond HIPC”) debt relief to the five HIPCs in the Western Hemisphere.
To participate in the HIPC Initiative, countries need to meet certain criteria, commit to policy changes to reduce poverty, and demonstrate a record of doing so. To be considered for HIPC Initiative assistance, a country must:
The Executive Boards of the IMF and World Bank formally decide on a country’s eligibility for debt relief and the international community commits to reducing debt to a level that is considered sustainable. This stage is referred to as the decision point. Once a country reaches it, it may immediately obtain interim debt relief. To receive full reduction in debt under the HIPC Initiative, a country must:
Debt relief is part of a larger effort to address the development needs of low-income countries. For debt reduction to have a tangible impact on poverty, the additional money needs to be spent on programs that benefit the poor. Before the HIPC Initiative, on average, eligible countries were spending slightly more on debt service than on health and education combined. Since the initiative, they are spending about five times more on health, education, and other social services than on debt service.
For the 36 countries receiving debt relief, debt service paid declined by about 1.5 percentage points of GDP between 2001 and 2015. More recently, with the increase in public debt in low-income countries, debt service burdens have started to rise, although they still remain 1 percentage point below the pre-HIPC levels in 2017.
The IMF’s share of the cost is financed by bilateral contributions and from IMF resources, mainly investment income on the proceeds from off-market gold sales in 1999, which were deposited to the IMF’s PRGT-HIPC Trust.
Resources in the trust have been insufficient to finance debt relief to the remaining two countries with protracted arrears to the IMF, Somalia and Sudan, which have met the initial conditions for debt relief and reached the decision point. The original financing plan did not include the cost of debt relief to countries with protracted arrears to the IMF.
In December 2019 and May 2021, the IMF Executive Board approved financing plans that would help mobilize the resources needed for the IMF to cover its share of debt relief to Somalia and Sudan, respectively. Eritrea is also eligible for HIPC debt relief but does not have financial obligations to the IMF.
One challenge for the HIPC Initiative is to ensure that eligible countries get full debt relief from all their creditors. Poor countries’ largest creditors – World Bank, African Development Bank, IMF, Inter-American Development Bank, and all Paris Club countries – have provided their full share of debt relief under the HIPC Initiative, and beyond, but other creditors have not done so.
Because creditors’ participation in the HIPC Initiative is voluntary, the IMF and the World Bank will continue to encourage creditors to participate and to deliver their share of HIPC Initiative debt relief.
| Post-Completion-Point (36) | ||
| Afghanistan | The Gambia | Nicaragua |
| Benin | Ghana | Niger |
| Bolivia | Guinea | Rwanda |
| Burkina Faso | Guinea-Bissau | São Tomé & Príncipe |
| Burundi | Guyana | Senegal |
| Cameroon | Haiti | Sierra Leone |
| Central African Republic | Honduras | Tanzania |
| Chad | Liberia | Togo |
| Comoros | Madagascar | Uganda |
| Republic of Congo | Malawi | Zambia |
| Democratic Republic of Congo | Mali | |
| Côte d’Ivoire | Mauritania | |
| Ethiopia | Mozambique | |
| Interim Countries (Between Decision and Completion Point) (2) |
||
| Somalia | Sudan |
| Pre-Decision Point Countries (1) | ||
| Eritrea |
