HIPC FAQs

1. What does HIPC stand for?
2. What is the HIPC Initiative?
3. Who is eligible for HIPC Initiative and How?
4. What is ‘Decision Point’ and ‘Completion Point’?
5. Countries which have benefitted under HIPC Initiative 

1. What does HIPC stand for?

The word “HIPC” (pronounced as hipic) is an acronym for the Heavily Indebted Poor Countries. These countries were categorised as HIPCs as they became overly indebted in the 1970s and 1980s. Concessional lending by the international lenders and borrowings by the sovereign government of the developing countries was a major source of revenue to promote their economic sectors and industrialise their economies.  The countries borrowed heavily in the process in the hope that their economies will grow in time and they will meet with their objectives. The concessional lending has been at interest rates of 1% or less with maturities of over 30 years. In spite of such low interest rates and such long repayment terms, many countries were unable to pay their debts. In the late 1980s, creditor countries tried to help and support these countries by providing easier repayment terms. Nevertheless, the countries were unable to meet with their repayment obligations. Major events in the international world, such as oil price shocks, high interest rates and recessions in industrial countries did not help the developing countries and the debt started to grow. Other domestic factors such as droughts, floods, civil wars and poor public sector management in most indebted countries did not help in increasing the exports and generating revenue. The countries’ budget deficit grew and the debt continued to build up as some countries even resorted to take new loans in order to service their previous debt. All in all it was an accumulation of more and deeper borrowings. In spite of the international efforts in providing debt relief mechanisms, the countries’ debts were beyond the sustainable level. In October 1996, the IMF and the WB announced the HIPC Initiative which would provide for a comprehensive solution to the problems of the indebtedness in the poor countries. 

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2. What is the HIPC Initiative?

The HIPC Initiative is a method to reduce debt of a country which has been classified as a HIPC status country. The Initiative requires the participation of all creditors (bilateral, multilateral, and commercial) in writing off their debts owed by the HIPC countries. The basis on which the HIPC Initiative was based is the voluntary participation of the creditors which also became a difficulty in achieving the entire success of the HIPC Initiative. Hence the HIPC Initiative was revised and countries called for a greater and deeper debt relief.

The "Enhanced HIPC" Initiative launched in September 1999 tried to enhance the facilities which were being offered under the HIPC Initiative. In addition to calling for the participation of all the creditors, it was accompanied by the creation of new institutional tools to fight poverty and make the benefits of debt relief more durable.

Both Initiatives aim for countries to make debt service burdens manageable, through a mixture of sound policies, generous debt relief, and new inflows of aid and which are following the supported adjustment and reform programs of IMF and World Bank.

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3. Who is eligible for HIPC Initiative and How?

To be eligible to obtain the reliefs under the Initiative, a country must be facing an unsustainable debt situation which means that if the country’s debt to export levels are above a fixed ratio of 150 %; or if the country has a huge fiscal burden such that the debt to government revenues are above 250%. Debt relief is provided when the countries show that they are on the way to sustainable growth through the establishment of sound macroeconomic and structural policies to provide a good environment for economic activity and poverty reduction.

The key reforms in the countries are designed to encourage sustainable economic growth through the creation of a sound legal system and establishing a reliable and accountable financial system. The aim is also to create an environment in which corruption does not flourish and governance is good with more transparency.

Two key stages are essential in the provision of the debt relief: the Decision Point and the Completion Point.

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4. What is ‘Decision Point’ and ‘Completion Point’?

The ‘Decision Point’ is reached when a country makes the pledge to reform its country and has established a track record of macroeconomic stability and the report on the Poverty Reduction Strategy Paper  (PRSP) for the World Bank  has been prepared. After the Decision Point, interim debt relief is granted.

The ‘Completion Point’ is reached when a country maintains macroeconomic stability under the IMF supported program known as the Poverty Reduction Growth Facility.  This is achieved when the country has satisfactorily carried out for a year the key structural and social reforms in its poverty reduction strategy as set out by the World Bank. The amount of debt relief then becomes permanent and provided fully.

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5. Countries which have benefitted from HIPC Initiative  

22 countries have benefitted from the HIPC Initiative and have received debt relief.

Eligible countries have been:

• Benin 
• Bolivia  
• Burkina Faso
• Cameroon  
• Ethiopia                     
• Ghana          
• Guyana     
• Honduras                     
• Madagascar  
• Mali  
• Malawi   
• Mauritania    
• Mozambique  
• Nicaragua    
• Niger
• Rwanda
• Sao Tome & Principe
• Senegal
• Sierra Leone
• Tanzania
• Uganda
• Zambia