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Outline of the Heavily Indebted Poor Countries Initiative
HIPC only applies to those countries (currently 42 see countries) that have low income and very heavy debts
- Various conditions, including that participating countries must already
be borrowing at concessional (i.e. low) rates only, prior to assessment for
- Country prepares a "participatory" PRSP (Poverty Reduction
- Debt "Sustainability Analysis" carried out by the IMF/World
- Some debt cancellation under “traditional” (non-HIPC) terms.
- 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.
- 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 is reached when the policy objectives of the PRSP
(i.e. poverty reduction measures, economic reforms) are deemed to have
- 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.
42 are considered eligible, the figure differing from the original 41 due to various
24 have passed Decision Point, most recently
Ethiopia in November 2001, (all marked with * above).
have passed Completion Point: Uganda,
Mozambique, Bolivia and Tanzania.
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.
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
bilateral relief (the "100%" pledges) will bring the debt down to
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
E. Although $54bn is to be delivered over time, only about
$18bn stock cancellation has been delivered to date.
$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).
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:
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.
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
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.
- debt owed by one
country to another.
- 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".
- the amount of
- annual payments
made by an indebted country to try and pay off its debt, or (more usually) just
keep up with the interest.
Sources: Eurodad (2001), World Bank (2001)
Jubilee Debt - Web Group updated 23 Januar 2003