Click here for search results

Debt Relief and Continued Flexibility Alleviate the Debt Burdens of Poor Countries

The new World Bank-IMF report, Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) - Status of Implementation, updates the status of implementation, impact, and costs of the HIPC Initiative and the MDRI.

According to the report, debt relief provided under both initiatives has substantially alleviated debt burdens in recipient countries, aided by continued flexibility on the part of the International Development Association, the arm of the World Bank that provides grants and zero-interest credits to the poorest countries, and the Fund.

Very significant progress has been achieved in implementing the HIPC Initiative and the MDRI. With 35 of 40 eligible countries reaching the decision point[1] by end June-2009—of which 26 have reached the completion point[2] — the HIPC Initiative has provided much needed debt relief to most HIPCs. A number of the remaining interim HIPCs are also well placed to progress towards completion point in the period ahead, and benefit from irrevocable debt relief under the Initiatives.

Nonetheless, some important challenges remain in order to fully implement the Initiatives. Some pre-decision point countries continue to be affected by severe political problems, while in a number of long-standing interim countries, the progress that has been achieved of late is still at a nascent stage. To reach the completion point, they will need to further strengthen their policies and institutions, and require continued support from the international community. In this regard, it is important for all creditors to provide their full share of HIPC debt relief, and for donors to ensure that the Bank and the Fund have adequate resources to provide their share of debt relief under the Initiatives to all eligible countries.

Notwithstanding debt relief, maintaining debt sustainability beyond the completion-point remains an issue for many HIPCs. The analysis conducted by the staff reveals that the current global crisis has exacerbated debt sustainability concerns for a number of countries, but the analysis does not indicate a risk of a major debt crisis in HIPCs. Nonetheless, HIPCs need to implement sound borrowing policies and strengthen their capacity to manage their public debt—two areas where the Bank and the Fund have already been assisting their low-income members.

1. Decision point is when a country is considered eligible for HIPC Initiative assistance. To reach decision point, a country should have a track record of macroeconomic stability, have prepared an Interim Poverty Reduction Strategy Paper (PRSP), and cleared any outstanding arrears.

2. Completion point means that the country can now receive full and irrevocable reduction in debt available under the HIPC Initiative and MDRI. To reach completion point, a country must maintain macroeconomic stability under an IMF's Poverty Reduction and Growth Facility (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.

Permanent URL for this page: