Steps of the HIPC Initiative

STEPS OF THE HIPC INITIATIVE

 

To be eligible for the HIPC Initiative a country must:

 

1.       Face unsustainable debt situation after the full the full application of the traditional debt relief mechanisms (such as the application of Naples terms under the Paris Club agreement). 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 where the exclusive reliance on external indicators may not adequately reflect the fiscal burden of external debt the debt-to-government revenues are above of 250 percent.

 

2.     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).

 

3.       Establish a track record of reform and develops a Poverty Reduction Strategy Paper(PRSP) that involves civil society participation.

 

In order to reach decision point, a country should have a track record of macroeconomic stability, have prepared an Interim Poverty Reduction Strategy Paper, and cleared any outstanding arrears.  At which point, staffs of the World Bank and IMFcarry 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. Countries begin receiving interim relief on a provisional basis at this time.

 

The interim period between a country's decision and completion points varies, according to how rapidly a country can implement its poverty reduction strategy and maintain macroeconomic stability.

 

For a country to reach completion point it must maintain macroeconomic stability under a PGRF-supported program, carry out key structural and social reforms as agreed upon at the decision point, and implement a PRSP satisfactorily for one year . Once a country reaches completion point it receives the full amount of debt relief which now becomes irrevocable.

 

The framework also includes a provision by which additional debt relief, "topping-up", could be committed at the completion point in exceptional cases when exogenous factors cause fundamental changes to a country's economic circumstances.

Flow Chart: Steps of the HIPC Initiative