15/06/2018

THE HIPC INITIATIVE

Providing debt relief to Heavily
Indebted Poor Countries
An Overview
Dev Useree

Session objectives

• Introduce basic principles guiding the Heavily Indebted Poor

Countries (HIPC) Initiative
• Show the link between Paris Club restructuring in the context of
the more comprehensive framework provided by HIPC

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Zimbabwe and the HIPC Initiative

• Over recent years, there have been discussions within GoZ on

whether the country should consider the possibility of seeking
debt relief through the Heavily Indebted Poor Country (HIPC)
Initiative.
• Debate has equally extended on whether the country
• would be eligible and
• would indeed qualify for receiving debt relief under that
facility
• Debate among local civil society on the HIPC Initiative has equally
taken place plus stigma
• Stigma associated with HIPC Initiative is well understood
• But it does provide the most comprehensive debt relief package
– when one also brings in the MRDI (covered in next session)

Objectives of the HIPC Initiative

• A framework unveiled in 1996 by IMF & World Bank

–to address problems of the Heavily Indebted Poor
Countries (HIPCs)
• Developed because Paris Club mechanism & other
debt relief initiatives failed to resolve problems of
indebtedness
• HIPC I focused on issue of debt sustainability

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Goal

• To ensure deep, broad and fast debt relief and

thereby contribute toward growth, poverty
reduction, and debt sustainability in the
poorest, most heavily indebted countries

Principles guiding HIPC Initiative

• Target overall debt sustainability on case by case

–focusing on the totality of debt
• Debtor should show a good track record to put to good use
support provided
• Build on existing mechanism
• Participation by all creditors
• Multilateral creditors should preserve their financial status and
preferred creditor status
• New finance should be on concessional terms

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HIPC Eligibility Criteria (Original)

• Limited to IDA only countries with a good track record of

adjustments and reforms
• Eligibility will be based on Debt Sustainability Analysis
–at decision point (after three years track record)
• Indicators used to assess sustainability
–NPV OF DEBT TO EXPORTS > 200%
–NPV OF DEBT TO GOVERNMENT REVENUES > 280%
–Revised later
• Performance criteria in structural and social reforms
• All relevant creditors will perform

Enhanced HIPC (1999)

• HIPC Initiative modified in 1999

• Deeper and broader relief
–Thresholds lowered
–More countries eligible
• Faster relief
–Receive relief faster
–Interim relief provided
• Stronger link between debt relief and poverty
reduction

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Enhanced HIPC Initiative - eligibility

Developed in 1999
• Country must be IDA only and PRGF (now PRGT) eligible
–with established track record of performance under structural
adjustment programme with IMF/W Bank
–HIPC Initiative would accept, on a case-by-case, different
programs as proof of track record such as: Rights Accumulation
Program (RAP), Staff-monitored Program (SMP) - like Liberia
did, Emergency Post-Conflict Assistance (EPCA) – like for Cote
D’Ivoire and Standby Arrangement (SBA)
• Approval by World Bank of an interim poverty reduction strategy
paper (I-PRSP).

Debt thresholds to qualify for Debt Relief

• Whether a country would qualify is determined on a case-by-

case basis on results of DSA
• Country is eligible for HIPC status
–after receiving Naples Terms treatment - 67% stock reduction
- by Paris Club and
• Its debt indicators are still unsustainable
–Present value of debt to Exports ratio (PV/XGS) exceeds 150%
–Present value of debt to budget revenue ratio (PV/DBR)
exceeds 250%
• Access to debt relief via fiscal window PV/DBR ratio requires a
country to meet two further threshold
• Openness criteria of export to GDP ratio of 30% or more
• Revenue criteria of budget revenue to GDP ratio of 15%

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Implementation of the HIPC Initiative

• The implementation of HIPC goes through a two-stage

process:

• First stage leading to Decision Point

• Second stage leading to Completion Point

Implementation of HIPC Initiative

First stage
• After country receives Naples terms and stays on
track with IMF and World Bank
• Tripartite DSA is undertaken to determine
sustainability
• At end of stage country reaches Decision Point
• Decision point coincides with stock treatment under
Naples terms
–at which country’s eligibility and debt relief will be
determined

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Decision point requirements

• A track record of macro stability

• Prepared PRSP
• Cleared outstanding arrears
• Reaching decision point allows country to receive
MULTILATERAL DEBT interim relief on debt service
payment due

Implementation of HIPC Initiative (2)

Second stage
• Country receives 90% flow reduction from Paris Club
(and other non multilateral creditors).
• Implementation of at least one year of full PRSP
• End of this stage is the Completion Point
–Floating completion point depending on
performance
• Completion point when all creditors including
multilaterals provide sufficient debt relief to achieve
debt sustainability
• Remember it’s not cancelation of all multilateral
debt – just sufficient to achieve sustainability

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Completion Point Requirements

• To receive full reduction in debt available under the HIPC

Initiative, country must
1. Establish a further track record of good performance under
programs supported by loans from the IMF and the World
Bank;
2. Implement satisfactorily key reforms agreed at the decision
point; and
3. Adopt and implement its PRSP for at least one year.

• Meeting the above allows country to reach its completion point

• Full debt relief committed at the decision point is made
available

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HIPC Initiative Process

Source: DRI

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Steps for providing relief

• Agreement reached on
– the latest of debt stock, debt service
– export, budget data
– complete reconciliation of the debt data with all creditors
• Preparation of a tripartite DSA
– preparation of long term debt relief
– new financing and
– macroeconomic scenarios

• World Bank boards discusses amount of debt relief and

timing
• IMF/World Bank Board meetings on the HIPC Decision Point
and I PRSP

Steps for providing relief (2)

• Consultations with creditors and donors on relief

• Preparation of interim PRSP
• Agreement with IMF/World Bank and the HIPC
Government on
–a formal HIPC Decision Point Document
–Interim PRSP and
–accompanying letter of intent from IMF and World Bank
Boards

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Steps for providing relief (3)

• Paris club to provide relief shortly after decision point
• Between Decision point and Completion point
–annual review of development of I-PRSP, debt sustainability
and Board meetings to review the Completion point
• Preparation and implementation of final PRSP and revised DSA
–IMF/W Bank approve the HIPC document (including final DSA
and PRSP)
• Possible additional meeting of Paris Club and Consultative
Group to secure adequate pledges and support for poverty
reduction

Status of Debt Relief under HIPC Initiative

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The HIPC Initiative not a permanent facility

• Intention was always to limit the availability of the HIPC Initiative to countries
that initially qualified from that facility
• In 1998, decision taken that initiative would not be a permanent facility
• A “sunset” clause was a key element of original design of the framework
• Provided a deadline by which countries had to establish sufficient track record
to join the initiative.
• But slow progress by by countries led to four extensions of the sunset clause
• IMF/World Bank then decided that potential eligibility would be “ring-fenced”
to countries meeting the Initiative’s income and indebtedness criteria based
on end-2004 data
• In 2006, the facility was closed
• Some countries were “grandfathered” into HIPC at that time
• Meant that all countries meeting income and indebtedness criteria based on
end-2004 data could qualify for HIPC debt relief whether or not they had
adopted IMF/World Bank reform programs before the end of 2006
• Zimbabwe was not grandfathered then

Interesting comments on Zimbabwe (IMF, 2016)

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Thank You

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