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Debt Relief

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  • What is the World Bank doing to help heavily indebted poor countries (HIPCs)?
  • The World Bank Group provides debt relief to the poorest countries through the HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI). In 1996 the International Development Association (IDA), the Bank’s fund that provides concessional credits and grants to the poorest countries in the world, and the IMF launched the HIPC Initiative. The Initiative calls for the voluntary provision of debt relief by all creditors, whether multilateral, bilateral, or commercial, and aims to provide a fresh start to countries with a foreign debt that places too great a burden on export earnings or fiscal revenues.

    In 2006, following the 2005 Gleneagles Summit of the G8 group of nations, the Bank joined the IMF and the African Development Bank in implementing the MDRI, forgiving 100 percent of eligible outstanding debt owed to these three institutions by all HIPC countries reaching the completion point of the HIPC Initiative.

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  • What is the implementation process of the HIPC Initiative?
  • There are 40 HIPCs. The first stage of qualification for debt relief is the decision point, at which the country must have a current track record of satisfactory performance under IMF and International Development Association (IDA)-supported programs, a Poverty Reduction Strategy (PRS) in place, and debt burden indicators that are above the HIPC Initiative thresholds using the most recent data for the year immediately prior to the decision point. At the decision point, many creditors, such as the Bank, the IMF, multilateral development banks, and Paris Club bilateral creditors, begin to provide debt relief, although many of these institutions maintain the right to revoke this if policy performance falters.

    Debt relief from participating creditors becomes irrevocable at the completion point. At the decision point, the country agrees on a list of completion point triggers, achieving which the country will “graduate” from the HIPC Initiative. These include a continued track record of satisfactory performance on an IMF program and the implementation for at least one year of the PRS.

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  • How many countries have reached the completion/decision point?
  • More than three quarters of eligible countries (35 out of 40) have reached the decision point and have qualified for HIPC Initiative assistance. Of those, 26 countries have reached the completion point and received debt relief under both the HIPC Initiative and the MDRI. During the past year, two countries (Cote d’Ivoire and Togo) reached the decision point and qualified for HIPC Initiative assistance, while three countries (Burundi, Central African Republic and Haiti) reached the completion point and qualified for irrevocable debt relief from the HIPC Initiative and the MDRI.

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  • What is the Debt Sustainability Framework (DSF)?
  • DSF is a forward-looking approach to guide borrowing and lending decisions so that resources are devoted toward achieving the Millennium Development Goals without creating the buildup of unsustainable debt. On the borrower side, the DSF aims to guide the borrowing decisions of low-income countries (LICs) in a way that matches their financing needs with their current and prospective repayment ability. On the creditor side, the DSF seeks to provide guidance for creditors’ lending and grant-allocation decisions to ensure that resources are provided to LICs on terms that are consistent with both progress toward their development goals and their long-term debt sustainability.

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  • What is the World Bank doing to provide a more flexible assistance for HIPC countries?
  • In 2006, the analytical rigor of debt sustainability analyses (DSAs) was improved and made more flexible to country-specific circumstances. An important source of flexibility already present in the DSF is the need to exercise judgment in assigning the country ratings. Also, the 20-year projections under the DSF ensure that ratings are not excessively affected by short-term macroeconomic fluctuations. Going forward, greater flexibility is expected to be applied to the framework by undertaking more in-depth analysis.

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  • What efforts does the World Bank make to improve debt management practices in low-income countries (LICs)?
  • In November 2008, the Bank launched a multi-donor trust fund, the Debt Management Facility (DMF), for LICs. The DMF is a grant facility financed by a multi-donor trust fund to strengthen debt management capacity and institutions in all low-income countries and IDA-only countries. This is achieved through a comprehensive debt management toolkit composed of the Debt Management Performance Assessment tool (DeMPA), a methodology for identifying the strengths and weaknesses of debt management operations, and the joint Bank-IMF medium-term debt management strategies (MTDS). It also provides the design of debt management reform programs and the promotion of learning and knowledge generation via an extensive program of training and outreach.

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For more information on debt, see http://www.worldbank.org/debt


Updated: September 2009




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