Heavily Indebted Poor Countries

The heavily indebted poor countries (HIPC) are a group of 38 developing countries with high levels of poverty and debt overhang which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank.

The HIPC Initiative was initiated by the International Monetary Fund and the World Bank in 1996, following extensive lobbying by NGOs and other bodies. It provides debt relief and low-interest loans to cancel or reduce external debt repayments to sustainable levels, meaning they can repay debts in a timely fashion in the future. To be considered for the initiative, countries must face an unsustainable debt burden which cannot be managed with traditional means. Assistance is conditional on the national governments of these countries meeting a range of economic management and performance targets and undertaking economic and social reforms.

As of January 2012, the HIPC Initiative had identified 39 countries (33 of which are in Sub-Saharan Africa) as being potentially eligible to receive debt relief. The 36 countries that have so far received full or partial debt relief are:

36 countries have completed the program and had their external debt cancelled in full, after Chad passed the Completion Point in 2015.

An additional three countries (Eritrea, Somalia and Sudan) are being considered for entry into the program.

To receive debt relief under HIPC, a country must first meet HIPC's threshold requirements. At HIPC's inception in 1996, the primary threshold requirement was that the country's debt remains at unsustainable levels despite full application of traditional, bilateral debt relief. At the time, HIPC considered debt unsustainable when the ratio of debt-to-exports exceeded 200-250% or when the ratio of debt-to-government revenues exceeded 280%.

The IMF estimates that the total cost of providing debt relief to the 40 countries currently eligible for the HIPC program would be around $71 billion (in 2007 dollars). Half of the funding is provided by the IMF, World Bank, and other multilateral organizations, while the other half is provided by the creditor countries. The IMF's share of the cost is currently being funded by the proceeds of gold sales by the organization in 1999, but it estimated that this will not be enough to cover the full cost, and further funding will need to be raised if additional countries such as Sudan and Somalia meet the qualification requirements for entry into the program.

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Wikipedia