Chapter

The HIPC Initiative

Author(s):
Kamau Thugge, and Anthony Boote
Published Date:
December 1999
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The HIPC Initiative is a framework developed jointly by the IMF and the World Bank to address the external debt problems of the heavily indebted poor countries (HIPCs). It is based on the following guiding principles: (I) the objective is to target overall debt sustainability on a case-by-case basis, focusing on the totality of a country’s debt; (2) actions should be envisaged only when the debtor has shown, through a track record, ability to put to good use the exceptional support provided; (3) the new measures should build, as much as possible, on existing mechanisms; (4) additional action should be coordinated among all creditors involved, with broad and equitable participation; (5) action by multilateral creditors should preserve their financial integrity and preferred creditor status; and (6) new external finance for the indebted countries should be on appropriately concessional terms.

Since the onset of the debt crisis in the early 1980s, which affected both middle- and low-income countries, the debt situation of middle-income debtor countries has improved significantly. Many of these countries have benefited from concerted support by the international financial community. This support has been provided in the form of Paris Club flow reschedulings (Table 1), stock-of-debt arrangements under the Brady plan, and adjustment programs supported by the multilateral financial institutions. These instruments have proved to be effective mechanisms for allowing countries to normalize relations with external creditors and to resume sustainable growth. Recent years have witnessed a reentry to international capital markets by many middle-income countries that had been most severely affected by the debt crisis.

Table 1.Status of Paris Club Rescheduling Countries(As of September 30, 1997)
Low-IncomeLower-Middle-IncomeOther Middle-Income
Countries1Countries2CountriesTotal
Countries that graduated from reschedulings3
**Benin10/96Dominican Rep.3/93Argentina3/95
**Cambodia6/97Ecuador12/94Brazil8/93
Gambia, The9/87Egypt6/94Bulgaria4/95
#**Guyana5/96El Salvador9/91Chile12/88
**Haiti3/96Ghana4/964,5Costa Rica6/934
Malawi5/89Guatemala3/93Croatia12/95
#**Mali5/96Jamaica9/954FYR Macedonia 6/96
* Vietnam12/934Kenya1/944,6Mexico5/92
Morocco12/92Panama3/92
Philippines7/947Romania12/83
Poland4/91Trinidad and
Tobago3/91
Turkey6/83
Number of
countries8111231
Countries with rescheduling agreements in effect
+**Bolivia12/95Gabon11/98Algeria5/98
+**Burkina Faso6/96Jordan2/99Russia3/998
** Chad8/98Peru12/988
** Congo,
Rep. of6/99
** Ethiopia10/99
** Guinea12/999
** Guinea-
Bissau12/97
** Madagascar11/99
** Mauritania12/97
** Mozambique6/99
** Niger6/99
** Senegal12/97
** Sierra Leone12/97
** Tanzania11/9910
** Togo9/97
+**Uganda2/95
** Zambia12/98
Number of countries173222
Countries with previous rescheduling agreements, but without current
rescheduling agreements, which have not graduated from reschedulings
Angola9/90Nigeria3/92Yugoslavia116/89
** Cameroon9/969
* Central African
Rep.3/95
Congo, Dem.
Rep. of the6/9012
+* Côte d’Ivoire3/97
* Equatorial
Guinea2/96
** Honduras1/979
Liberia6/85
** Nicaragua6/97
Somalia12/88
Sudan12/84
Yemen, Rep. of6/97
Number of countries121114
All countries37151567
Source: Paris Club.Notes: Includes agreements of Russia and Turkey with official bilateral creditors; stock treatment underlined. Dates refer to end of current or last consolidation period. In the case of a stock-of-debt operation, canceled agreements, or rescheduling of arrears only, date shown is that of relevant agreement.

* denotes rescheduling on London terms, and ** denotes rescheduling on Naples terms. + denotes countries for which Paris Club creditors have indicated their willingness to provide debt relief on Lyon terms in the context of the HIPC Initiative. # denotes stock treatment subject to decisions (not yet made) on eligibility for assistance under the HIPC Initiative.

Defined here as countries that obtained lower-middle-income but not concessional terms with Paris Club reschedulings.

For some countries, this inevitably represents an element of judgment: in certain circumstances, for example, if hit by an external shock, a country may need further reschedulings. Some of the low-income countries may be eligible for enhanced action under the HIPC Initiative.

Rescheduling of arrears only.

Limited deferral of long-standing arrears to three creditors on nonconcessional terms.

Nonconcessional rescheduling at the authorities’ request.

The 1994 rescheduling agreement was canceled at the authorities’ request.

Agreement includes a reprofiling of the stock of certain debts at the end of the consolidation period.

Involved debt relief of 50 percent in NPV terms.

Agreement subject to entry-into-force clause.

Former Socialist Federal Republic of Yugoslavia.

Last rescheduling on Toronto terms.

Source: Paris Club.Notes: Includes agreements of Russia and Turkey with official bilateral creditors; stock treatment underlined. Dates refer to end of current or last consolidation period. In the case of a stock-of-debt operation, canceled agreements, or rescheduling of arrears only, date shown is that of relevant agreement.

* denotes rescheduling on London terms, and ** denotes rescheduling on Naples terms. + denotes countries for which Paris Club creditors have indicated their willingness to provide debt relief on Lyon terms in the context of the HIPC Initiative. # denotes stock treatment subject to decisions (not yet made) on eligibility for assistance under the HIPC Initiative.

Defined here as countries that obtained lower-middle-income but not concessional terms with Paris Club reschedulings.

For some countries, this inevitably represents an element of judgment: in certain circumstances, for example, if hit by an external shock, a country may need further reschedulings. Some of the low-income countries may be eligible for enhanced action under the HIPC Initiative.

Rescheduling of arrears only.

Limited deferral of long-standing arrears to three creditors on nonconcessional terms.

Nonconcessional rescheduling at the authorities’ request.

The 1994 rescheduling agreement was canceled at the authorities’ request.

Agreement includes a reprofiling of the stock of certain debts at the end of the consolidation period.

Involved debt relief of 50 percent in NPV terms.

Agreement subject to entry-into-force clause.

Former Socialist Federal Republic of Yugoslavia.

Last rescheduling on Toronto terms.

However, the HIPCs, most of which are in sub-Saharan Africa, have continued to find it difficult to meet their external debt-service obligations. The difficulties can be traced to a combination of several factors. These include (1) external shocks, such as a deterioration in the terms of trade, and adverse weather conditions; (2) civil strife; (3) the lack of sustained adjustment or implementation of structural reforms; (4) the lending policies of many creditors, especially the provision of loans at commercial interest rates with short repayment periods; (5) the lack of prudent debt-management policies by debtor countries, driven in part by excessive optimism by creditors and debtors about the prospects for increasing export earnings to build debt-servicing capacity; and (6) the lack of careful management of the currency composition of external debt. All these factors contributed to increasing the debt burden of the HIPCs.

In several important respects, the external position of the HIPCs differs widely from country to country (Table 2). For example, in 1994, for some HIPCs the external current account was in surplus, while for others deficits exceeded 100 percent of exports. In addition, scheduled debt-service obligations varied widely—from less than 20 percent of exports for some countries to more than 100 percent for others, while the actual debt service paid ranged from 5 percent of exports to as much as 50 percent. Finally, the HIPCs are indebted to a variety of creditors, including Paris Club bilateral creditors, non-Paris Club bilateral creditors, commercial banks, and multilateral institutions (Table 3 and Figure 1).

Table 2.HIPCs: Indicators of External Debt Burden1
Percent Share inNoninterest
CurrentReserve
NPV toDebt-Exports in 1995 of:AccountCoverage
ExportsServiceThree mainVariability of Exports4(In percent of GDP)5(In months of imports)6
Country2Ratio3Ratio3Mainproductproducts
Benin9.735.9Cotton37.915.0−5.2−0.6
Bolivia270.225.412.2Zinc32.120.9−5.87.8
Burkina Faso275.218.038.7Cotton54.723.1−12.1CFAzone
Cameroon352.756.5CFAzone
Chad160.510.043.7Cotton67.713.6−16.0CFAzone
Congo, Dem.
Rep. of the742.732.421.8Diamonds45.726.6−4.50.1
Congo, Rep. of261.011.983.6Crude oil93.1−39.6CFAzone
Côte d’Ivoire360.617.928.6Cocoa47.510.5CFAzone
Equatorial GuineaCFAzone
Ethiopia599.733.836.8Coffee46.517.9−6.88.7
Ghana253.127.3
Guinea177.918.037.4Bauxite58.211.9−6.52.8
Guinea-Bissau1,293.259.856.3Cashew64.030.8−11.22.8
Guyana180.414.619.9Sugar48.234.0−4.45.2
Honduras211.632.322.5Coffee46.313.3−2.72.7
Kenya147.124.37.3Tea15.718.3−1.73.6
Lao People’s

Dem. Rep.
6.819.9Wood54.769.8−17.32.6
Madagascar514.144.712.3Coffee25.620.2−3.82.3
Mali254.212.347.1Cotton75.120.6−13.7CFAzone
Mauritania282.620.252.0−4.92.6
Mozambique780.830.315.5Prawns21.832.6−22.23.2
Nicaragua661.9108.920.1Coffee39.830.3−16.51.0
Niger303.414.250.6Uranium69.319.3−9.7CFAzone
Nigeria
Rwanda745.949.655.8Coffee66.938.2−27.73.2
Sâo Tomé and

Príncipe
1,454.626.650.2Cocoa80.311.6
Senegal147.715.717.8Fish32.211.7−5.0CFAzone
Sierra Leone392.836.052.8Rutile97.318.6−14.71.4
Sudan194.3
Tanzania551.240.812.8Coffee26.832.7−13.71.9
Source: IMF staff estimates.

All data refer to 1996 (1995/96) unless otherwise indicated.

Excluded are those HIPCs for which no debt sustainability analysis has been prepared (Angola, Burundi, the Central African Republic, Liberia, Myanmar, and Somalia).

Excluding workers’ remittances. For the NPV ratio, present value of external debt service on disbursed public and publicly guaranteed debt in percent of the average of exports of goods and services over three years ending in 1996. For debt service ratio, one year of exports, 1996 is used.

Defined as the standard deviation in export values over the ten-year period 1986-95 (1985/86-1994/95), in percent of the average.

Current account balance excludes interest and net official transfers.

Imports of goods and services.

After assumed debt rescheduling or relief, including Paris Club stock-of-debt operation on Naples terms, where applicable.

Excluding grants.

Central government. For Bolivia, Burkina Faso, the Lao People’s Democratic Republic, Madagascar, Mali, Nicaragua, and Vietnam, government refers to general government.

Public Sector External Debt Service Payable in 1996 as a Percent of:7Fiscal Indicators9. as a Percent of GDPNPV of

Public and Publicly

Guaranteed Debt

as Percent

of GDP7
Country
Government

revenue8
Government

expenditure
Tax

revenue
Official

grants
Primary

balance
17.311.912.25.4−6.750.7Benin
17.42.444.6Bolivia
17.010.511.27.3−8.730.5Burkina Faso
93.5Cameroon
22.99.59.06.90.232.7Chad
223.956.10.9181.7Congo, Dem.

Rep. of the
27.225.20.910.7144.4Congo, Rep. of
143.2Côte d’Ivoire Equatorial
Guinea
26.818.312.86.3−5.574.1Ethiopia
29.1Ghana
32.620.97.13.1−4.533.5Guinea
68.930.67.911.1−10.2199.9Guinea-Bissau
42.437.131.82.32.6160.5Guyana
70.759.916.50.22.971.7Honduras
27.826.625.11.35.345.3Kenya
8.75.210.73.88.543.1Lao People’s

Dem. Rep.
102.649.67.83.1−1.190.6Madagascar
17.411.612.77.1−6.947.6Mali
12.615.417.52.28.6134.1Mauritania
50.827.412.87.8−9.9158.7Mozambique
134.699.3𢀦5.2−6.5205.9Nicaragua
25.513.47.44.00.642.5Niger
Nigeria
38.510.17.816.3−2.738.3Rwanda
127.424.79.023.5−4.7342.8Sâo Tomé and

Príncipe
30.427.113.91.90.642.0Senegal
22.213.310.43.7−1.258.7Sierra Leone
Sudan
63.647.912.82.5−1.2112.7Tanzania
Source: IMF staff estimates.

All data refer to 1996 (1995/96) unless otherwise indicated.

Excluded are those HIPCs for which no debt sustainability analysis has been prepared (Angola, Burundi, the Central African Republic, Liberia, Myanmar, and Somalia).

Excluding workers’ remittances. For the NPV ratio, present value of external debt service on disbursed public and publicly guaranteed debt in percent of the average of exports of goods and services over three years ending in 1996. For debt service ratio, one year of exports, 1996 is used.

Defined as the standard deviation in export values over the ten-year period 1986-95 (1985/86-1994/95), in percent of the average.

Current account balance excludes interest and net official transfers.

Imports of goods and services.

After assumed debt rescheduling or relief, including Paris Club stock-of-debt operation on Naples terms, where applicable.

Excluding grants.

Central government. For Bolivia, Burkina Faso, the Lao People’s Democratic Republic, Madagascar, Mali, Nicaragua, and Vietnam, government refers to general government.

Percent Share inNoninterest
Exports in 1995 of:CurrentReserve
NPV toDebt-AccountCoverage
ExportsServiceThree mainVariability of Exports4(In percent of GDP)5(In months of imports)6
Country2Ratio3Ratio3Mainproductproducts
Togo211.817.719.5Phosphate46.022.4−5.0CFAzone
Uganda293.818.168.4Coffee74.035.2−6.33.6
Vietnam86.86.814.1Crude oil28.738.8−10.32.1
Yemen, Rep. of306.833.0
Zambia326.526.348.0Copper20.0−7.91.5
Source: IMF staff estimates.

All data refer to 1996 (1995/96) unless otherwise indicated.

Excluded are those HIPCs for which no debt sustainability analysis has been prepared (Angola, Burundi, the Central African Republic, Liberia, Myanmar, and Somalia).

Excluding workers’ remittances. For the NPV ratio, present value of external debt service on disbursed public and publicly guaranteed debt in percent of the average of exports of goods and services over three years ending in 1996. For debt service ratio, one year of exports, 1996 is used.

Defined as the standard deviation in export values over the ten-year period 1986-95 (1985/86-1994/95), in percent of the average.

Current account balance excludes interest and net official transfers.

Imports of goods and services.

After assumed debt rescheduling or relief, including Paris Club stock-of-debt operation on Naples terms, where applicable.

Excluding grants.

Central government. For Bolivia, Burkina Faso, the Lao People’s Democratic Republic, Madagascar, Mali, Nicaragua, and Vietnam, government refers to general government.

Public Sector External Debt Service Payable in 1996 as a Percent of:7Fiscal Indicators9. as a Percent of GDPNPV of

Public and Publicly

Guaranteed Debt

as Percent

of GDP7
Country
Government

revenue8
Government

expenditure
Tax

revenue
Official

grants
Primary

balance
31.028.714.02.8−3.454.9Togo
18.211.310.54.5−1.031.0Uganda
11.411.019.60.61.226.2Vietnam
41.0Yemen,

Rep. of
33.525.114.92.14.596.2Zambia
Source: IMF staff estimates.

All data refer to 1996 (1995/96) unless otherwise indicated.

Excluded are those HIPCs for which no debt sustainability analysis has been prepared (Angola, Burundi, the Central African Republic, Liberia, Myanmar, and Somalia).

Excluding workers’ remittances. For the NPV ratio, present value of external debt service on disbursed public and publicly guaranteed debt in percent of the average of exports of goods and services over three years ending in 1996. For debt service ratio, one year of exports, 1996 is used.

Defined as the standard deviation in export values over the ten-year period 1986-95 (1985/86-1994/95), in percent of the average.

Current account balance excludes interest and net official transfers.

Imports of goods and services.

After assumed debt rescheduling or relief, including Paris Club stock-of-debt operation on Naples terms, where applicable.

Excluding grants.

Central government. For Bolivia, Burkina Faso, the Lao People’s Democratic Republic, Madagascar, Mali, Nicaragua, and Vietnam, government refers to general government.

Source: IMF staff estimates.

All data refer to 1996 (1995/96) unless otherwise indicated.

Excluded are those HIPCs for which no debt sustainability analysis has been prepared (Angola, Burundi, the Central African Republic, Liberia, Myanmar, and Somalia).

Excluding workers’ remittances. For the NPV ratio, present value of external debt service on disbursed public and publicly guaranteed debt in percent of the average of exports of goods and services over three years ending in 1996. For debt service ratio, one year of exports, 1996 is used.

Defined as the standard deviation in export values over the ten-year period 1986-95 (1985/86-1994/95), in percent of the average.

Current account balance excludes interest and net official transfers.

Imports of goods and services.

After assumed debt rescheduling or relief, including Paris Club stock-of-debt operation on Naples terms, where applicable.

Excluding grants.

Central government. For Bolivia, Burkina Faso, the Lao People’s Democratic Republic, Madagascar, Mali, Nicaragua, and Vietnam, government refers to general government.

Table 3.HIPCs: Characteristics of Existing External Debt
Total External Debt (End-1996)1Eligible

for Paris

Club Stock-

of-Debt

Operations on

Naples Terms2
Debt by Principal Non-Paris Club Creditor Group3
Total

(In billions of

U.S. dollars)
Of which:

multilateral

(In percent)
Debt to

Russia
Commercial

banks
Multilateral institutions
IMFWorld BankOther
Angola9.32.4
Benin1.660.84
Bolivia4.861.64
Burkina Faso1.295.84
Burundi1.285.6
Cameroon8.122.8
Central African Rep.0.975.9
Chad1.083.4
Congo, Dem. Rep. of the9.927.7
Congo, Rep. of4.815.0
Côte d’Ivoire12.435.8
Equatorial Guinea0.349.4
Ethiopia5.152.8
Ghana5.270.9
Guinea3.054.0
Guinea-Bissau0.961.4
Guyana2.140.24
Honduras4.055.5
Kenya6.153.7
Lao People’s Dem. Rep.2.234.8
Liberia1.451.2
Madagascar3.748.4
Mali3.053.74
Mauritania2.347.1
Mozambique5.632.3
Myanmar5.225.4
Nicaragua5.330.4
Niger1.465.2
Nigeria28.217.9
Rwanda1.086.3
Säo Tomé and Príncipe0.371.9
Senegal3.663.8
Sierra Leone1.256.8
Somalia2.144.7
Sudan510.728.7
Tanzania6.350.9
Togo1.461.6
Uganda3.777.44
Vietnam23.94.16
Yemen, Rep. of5.625.76
Zambia6.454.4
Sources: World Bank Debtor Reporting System; and IMF staff estimates.

Total public and publicly guaranteed debt.

✓ indicates whether Paris Club concessional rescheduling has taken place.

✓ indicates significant debt to the respective creditor.

Stock-of-debt operation on Naples terms was agreed in 1995 or 1996.

Figures for 1993.

Exit rescheduling, no stock-of-debt clause.

Sources: World Bank Debtor Reporting System; and IMF staff estimates.

Total public and publicly guaranteed debt.

✓ indicates whether Paris Club concessional rescheduling has taken place.

✓ indicates significant debt to the respective creditor.

Stock-of-debt operation on Naples terms was agreed in 1995 or 1996.

Figures for 1993.

Exit rescheduling, no stock-of-debt clause.

Figure 1.Developing Countries: Public External Debt by Creditor

(In billions of U.S. dollars)

Sources: World Bank Debtor Reporting System; and IMF, InternationalFinancialStatistics.

Note: Medium- and long-term public and publicly guaranteed debt, including to the IMF.

1 The estimates for 1996 are provisional.

Recognizing the highly varied external positions among the HIPCs, the international financial community has addressed the debt problems of these countries in a manner that takes into account the total debt of the country concerned and ensures that debt relief is given in support of adjustment by debtors on a case-by-case basis, tailored to the individual circumstances of each debtor country.

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