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How the HIPC Initiative works

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2002
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To qualify for HIPC assistance, a country must pursue strong economic policies supported by the IMF and the World Bank. Its efforts are complemented by concessional aid from all relevant donors and institutions and traditional debt relief from bilateral creditors, including the Paris Club.

During this phase, the country’s external debt situation is analyzed in detail. If its external debt ratio, after the full use of traditional debt relief, is above 150 percent for the net present value of debt to exports (or, for small open economies, above 250 percent of government revenue), it qualifies for HIPC relief. At the decision point, the IMF and the World Bank formally decide on the country’s eligibility, and the international community commits to reducing the country’s debt to a sustainable level.

Once it qualifies for HIPC relief, the country must continue its good track record with the support of the international community, satisfactorily implementing key structural policy reforms, maintaining macroeconomic stability, and adopting and implementing a poverty reduction strategy. Paris Club bilateral creditors reschedule obligations coming due, with a 90 percent reduction in net present value, and other bilateral and commercial creditors are expected to do the same. The IMF and the World Bank and some other multilateral creditors provide interim relief between the decision and completion points.

A country reaches its completion point once it has met the objectives established at the decision point. It then receives the balance of the debt relief committed. This means all creditors are expected to reduce the net present value of their claims on the country to the agreed sustainable level.

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