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Debt and HIPC

Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI): status of implementation

Implementation, impact and costs of the enhanced HIPC

Authors: D. Leipziger; M. Allen
Publisher: HIPC Progress to Date, World Bank, 2007

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This report provides an update on the status of implementation, impact and costs of the enhanced Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) since mid-2006. It also discusses the status of creditor participation in both initiatives and the issue of litigation of commercial creditors against HIPCs.

It is argued that debt-service payments have declined as a result of debt relief under the HIPC Initiative and the MDRI, while expenditures on pro-poor growth programmes have continued to increase. However, for many interim HIPCs – those countries qualified but not yet attaining full debt ‘relief’ – the challenges in meeting their completion point triggers (i.e. full qualification) are related to maintaining macroeconomic stability and preparing participatory Poverty Reduction Strategy Papers (PRSPs). For many pre-decision point HIPCs – i.e. those not yet ‘qualified’ for the programme – internal conflict, governance issues, substantial arrears, and difficulties in formulating viable macroeconomic and poverty-reduction programs are among the factors that hinder their progress toward qualification for HIPC Initiative debt relief.

Key findings from the paper include:

  • there has been progress in implementing the HIPC Initiative and the MDRI. Three countries have reached the HIPC Initiative’s completion point, and two others have reached decision point
  •  ower debt burdens and debt-service payments have been associated with increased poverty-reducing expenditures
  • most multilateral financial institutions and Paris Club creditors have continued to provide debt relief in line with their commitments. The delivery of debt relief by non-Paris Club and commercial creditors remains low and full participation of these creditors needs to be encouraged
  •  litigation by commercial creditors against HIPCs presents a growing challenge to the implementation of the HIPC Initiative.