HIPC explained
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Outline of the Heavily Indebted Poor Countries Initiative (HIPC)

HIPC only applies to those countries (currently 42 see countries) that have low income and very heavy debts


HIPC Process


Debt Service


$54bn cancelled


Countries in HIPC







Pre-Qualification     - Various conditions, including that participating countries must already be borrowing at concessional (i.e. low) rates only, prior to assessment for HIPC.

First Stage              - Country prepares a "participatory" PRSP (Poverty Reduction Strategy Paper)

                               - Debt "Sustainability Analysis" carried out by the IMF/World Bank.

                               - Some debt cancellation under “traditional” (non-HIPC) terms.

Decision Point         - If the traditional debt cancellation still doesn't bring debt to "sustainable" levels, and if the "participatory" PRSP is endorsed by the World Bank/IMF, then the country passes through Decision Point into the HIPC process.

Second Stage         - Implementation of a full PRSP.

                               - Interim debt service relief (i.e. relief on interest payments, but not debt stock cancellation) provided on multilateral (WB/IMF) debt.

                               - Bilateral debt service relief/debt cancellation provided at the discretion of lenders.

Completion Point    - Completion Point is reached when the policy objectives of the PRSP  (i.e. poverty reduction measures, economic reforms) are deemed to have been achieved.

                               - Paris Club of creditor countries deliver up to 90%, and in some cases 100% cancellation of non-concessionary bilateral debt.

                               - WB/IMF delivers sufficient debt cancellation for "debt sustainability" criteria to be met.

                               - Countries seek equivalent treatment from non-Paris Club bilateral and commercial lenders.



B.   Only 4 countries out of 42 have reached Completion Point /received promised debt cancellation.

·     42 are considered eligible, the figure differing from the original 41 due to various additions/removals:




Burkino Faso*



Central African Republic



Congo, Dem. Rep.

Congo, Rep. Of.

Cote d'Ivoire


The Gambia*







Lao, People's Dem. Rep.











Sao Tome and Principe*


Sierre Leone











·     24 have passed Decision Point, most recently Ethiopia in November 2001, (all marked with * above).

·     4 have passed Completion Point: Uganda, Mozambique, Bolivia and Tanzania.



C.   Even if all goes well, only 48% of annual debt servicing will be cut, 2001-2005.

The total effect of the WB/IMF debt servicing reductions, and the G7/bilateral stock cancellations, will be a reduction in annual payments of up to 48% over 2001-2005 (i.e. from $2bn p.a. to $1.4bn) for the first 22. (Drop the Debt, 2001.). More details:

·     For the first 22 countries in HIPC the average reduction has been 27% (from $2.7bn p.a. to $2bn). But whilst the peak reduction has been 85% (Sao Tome and Principe), Zambia and Niger have seen their payments rise by 23% and 32% respectively. (Drop the Debt, 2001.)

·     G7 countries will cancel 100% of the bilateral debt stock owed to them by countries reaching Completion Point. Most (including the UK) will do so earlier i.e. at Decision Point. This is part of the 48% figure above.

·     Other countries (e.g. Australia, Norway) are following the G7 lead.



D.    Long term debt Cancellation will only be around $54bn.

The nominal debt cancellation figure for the 23 countries (i.e.  minus Ethiopia) is $54bn. The World Bank describes this figure as a "projection". It is worked out as follows:

·     According to the World Bank (Oct. 2001) the 23 countries (now 24) owe $54bn of debt NPV ($75bn in nominal terms): traditional (i.e. non-HIPC) relief measures will reduce this to $44bn (NPV).

·     HIPC (without additional bilateral pledges) will further lower this to $24bn (NPV), i.e. $20bn of NPV relief.

·     Additional bilateral relief (the "100%" pledges) will bring the debt down to $20bn (NPV).

·     Adding the traditional, HIPC and additional bilateral relief the total currently predicted reduction for the then 23 (now 24) is $34bn ($54bn NPV to $20bn NPV), or 62%, to be delivered "over time".



E.  Although $54bn is to be delivered over time, only about $18bn stock cancellation has been delivered to date.

About $18bn has been received by the three countries that have passed Completion Point (Drop the Debt, 2001; World Bank Press releases on Bolivia 8/6/1, Mozambique, 20/11/1 and Tanzania, 28/11/1).



F.   At best HIPC adds up to only 15% cancellation of unpayable poor country debt.

·     The 41 countries originally considered eligible for HIPC owe $198bn (nominal) (Drop the Debt, 2001).

·     The 52 poor countries assessed by Jubilee 2000 owed $372bn in 1998, of which at least $300-350bn was considered by J2000 and others to be unpayable.

·     Consequently HIPC plus the "100%" pledges is set to cancel only approximately 15% ($54bn out of $350bn) of unpayable poor country debt.

·     If we count only the $18bn debt stock cancellation that has actually been delivered for countries throughout HIPC, this proportion for the unpayable debt stock that has been cancelled falls to approx. 6%.



G. The UK Government's Quoted Figure and What it Means:

Gordon Brown (October 2001) has referred to "$53bn" of debt cancellation having "been agreed" (out of the $100bn that the G7 governments promised to HIPC in Cologne (1999).  This the total "projected" debt relief that is expected to eventually occur for the 23 (now 24) countries that have passed Decision Point.



H. Is HIPC delivering a lasting exit from debt?

·          The World Bank has its doubts. An internal paper released in April 2001 states that "HIPC debt relief alone does not ensure long term debt sustainability"; it estimates that debt "sustainability" will be achieved for only 16 of the then 23 countries within HIPC. It also admits that the definition of debt sustainability under the initiative is "quite narrow from a development perspective", and does not "measure the adequacy of public resources to address priority development programs".

·          Moreover Jubilee Plus asserts (in HIPC-Flogging a Dead Process, 2001) that if realistic trends for future growth and commodity prices are used, none of the then-23 HIPC countries would secure "sustainable" debt levels.


Bilateral debt                                         -    debt owed by one country to another.

Multilateral debt                                    -    debt owed to a many-government institution, e.g. the World Bank.

Nominal Value of debt                           -    the amount of money borrowed i.e. its face value.

Net Present Value (NPV) of debt           -    when a loan is made on "concessional" (low interest) terms, it is as if part of the loan is a grant, with the rest borrowed at full market rates. NPV takes this into account, with the difference between NPV and the nominal value reflecting the "grant" element. So, the lower the actual interest rate compared to the market rate, the lower the NPV of the debt compared to its nominal (face) value. Although complicated, the key point is to compare like with like, i.e. NPV with NPV, or nominal with nominal.

Poverty Reduction Strategy Plan Papers    -     It is a condition of receiving debt cancellation under HIPC that the  PRSPs be written and implemented, resulting in more spending on poverty reduction, as well as (highly controversial) economic "reforms".

Debt Stock                                             -    the amount of money borrowed.

Debt Servicing                                       -    annual payments made by an indebted country to try and pay off its debt, or (more usually) just keep up with the interest.


Main Sources: Eurodad (2001), World Bank (2001)


Jubilee Debt  - Web Group  updated 23 Januar 2003