The original Heavily Indebted Poor Countries (HIPC) Initiative was launched by the World Bank and the International Monetary Fund (IMF) in 1996 as a framework for all creditors, including multilateral creditors, to provide debt relief to the poorest and most heavily indebted countries. It was modified in 1999 as the Enhanced HIPC Initiative.
To be eligible for the HIPC Initiative, a country must:
- Face an unsustainable debt situation after the full application of traditional debt relief mechanisms. A country's debt level is considered unsustainable if debt-to-export levels are above a fixed ratio of 150 percent, or, where countries have very open economies, the debt-to-government revenues are above 250 percent.
- Be only eligible for highly concessional assistance from the International Development Association (IDA), the part of the World Bank that lends on highly concessional terms, and from the IMF's Poverty Reduction and Growth Facility (PGRF).
- Establish a track record of reform and develop a Poverty Reduction Strategy Paper (PRSP) that involves civil society participation.
To reach decision point, a country must:
At decision point:
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The World Bank and IMF carry out a loan by loan debt sustainability analysis to determine the level of indebtedness of the country and the amount of debt relief it may receive.
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A country begins to receive interim relief on a provisional basis
To reach completion point, a country must:
At completion point:
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A country receives the full amount of debt relief which now becomes irrevocable.
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Additional debt relief or "topping-up" could also be committed at the completion point in exceptional cases when exogenous factors cause fundamental changes to a country's economic circumstances.
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