The Heavily Indebted Poor Countries (HIPC) Initiative was launched by the IMF and the World Bank in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world’s poorest, most heavily indebted countries. In October 1999, the international community agreed to make the initiative broader, deeper, and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country would receive, and speeding up its delivery. The enhanced HIPC Initiative aims at reducing the net present value of debt at the decision point to a maximum of 150 percent of exports or 250 percent of government revenue, and the assistance will be provided on top of traditional debt-relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in net present value terms and at least comparable action by other bilateral creditors).
Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record, normally of three years, under programs supported by the IMF and the International Development Association (IDA). In the second stage, after reaching the decision point under the initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society and an agreed set of measures aimed at enhancing economic growth. During this stage, the IMF and the IDA grant interim relief, provided that the country stays on track with its IMF- and IDA-supported programs. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms.
At the end of the second stage, when the floating completion point has been reached, the IMF and the IDA will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.
Some three dozen HIPCs—the great majority of which are sub-Saharan African countries—are expected to qualify for assistance under the enhanced HIPC Initiative. Debt-relief packages are now in place for 22 countries under the enhanced HIPC Initiative framework (Benin, Bolivia, Burkina Faso, Cameroon, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Tanzania, Uganda, and Zambia), with total committed assistance estimated at some $34 billion, representing an average net present value stock-of-debt reduction of nearly 48 percent on top of traditional debt-relief mechanisms.