The heavily indebted poor countries (HIPC) are a group of 39 developing countries with high levels of poverty and debt overhang. Because of these factors, the International Monetary Fund (IMF) and the World Bank have classified them as eligible for special assistance. The HIPC Initiative was initiated by the International Monetary Fund and the World Bank in 1996, following extensive lobbying by NGOs and other bodies. It provides debt relief and low-interest loans to cancel or reduce external debt repayments to sustainable levels. This means the nations can repay debts in a timely fashion in the future. To be considered for the initiative, countries must face an unsustainable debt burden that cannot be managed with traditional means. Assistance is conditional on the national governments of these countries meeting a range of economic management and performance targets and undertaking economic and social reforms.
Countries The 37 countries that have so far received full or partial debt relief are:
37 countries have completed the program and had their external debt cancelled in full, after Somalia passed the Completion Point in 2020. An additional two countries (Eritrea and Sudan) are being considered for entry into the program as of March 2020. At its meeting on 28 June 2021, the IMF's executive board approved a financing plan to help mobilize resources needed for the fund to cover its share of debt relief to Sudan. This occurred after Sudan's civilian-led transitional government and its cabinet led by Abdalla Hamdok implemented tough economic reforms to reach the decision point.
Requirements To receive debt relief under HIPC, a country must first meet HIPC's threshold requirements. At HIPC's inception in 1996, the primary threshold requirement was that the country's debt remains at unsustainable levels despite full application of traditional, bilateral debt relief. At the time, HIPC considered debt unsustainable when the ratio of debt-to-exports exceeded 200-250% or when the ratio of debt-to-government revenues exceeded 280%.
Funding The IMF estimates that the total cost of providing debt relief to the 40 countries currently eligible for the HIPC program would be around $71 billion (in 2007 dollars). Half of the funding is provided by the IMF, World Bank, and other multilateral organizations, while the other half is provided by the creditor countries. The IMF's share of the cost is currently being funded by the proceeds of gold sales by the organization in 1999, but it estimated that this will not be enough to cover the full cost, and further funding will need to be raised if additional countries such as Sudan and Somalia meet the qualification requirements for entry into the program.
Criticism Critics soon began to attack HIPC's scope and its structure. First, they criticized HIPC's definition of debt sustainability, arguing that the debt-to-export and debt-to-government-revenues criteria were arbitrary and too restrictive. As evidence, critics highlighted that, by 1999, only four countries had received any debt relief under HIPC. Second, the six-year program was too long and too inflexible to meet the individual needs of debtor nations. Third, the IMF and the World Bank did not cancel any debt until the completion point, leaving countries under the burden of their debt payments while they struggled to institute structural reforms. Fourth, the ESAF conditions often undermined poverty-reduction efforts. For example, privatization of utilities tended to raise the cost of services beyond the citizens' ability to pay. Finally, critics attacked HIPC as a program designed by creditors to protect creditor interests, leaving countries with unsustainable debt burdens even upon reaching the decision point. Inadequate debt relief for such countries means that they will need to spend more on servicing debts, rather than on actively investing in programs that can reduce poverty. In 2008, some analysts showed that the HIPC initiative had failed, and failed miserably. One aspect behind the failure, according to the Nigerien journalist Moussa Tchangari:
The criteria used for country selection excluded the mostly highly populated developing countries (for example, Nigeria — 120 million inhabitants — which was on the very first list in 1996) and kept only small countries that are both very poor and heavily indebted... The countries where the majority of the world's poor people live are not included: China, India, Indonesia, Brazil, Argentina, Mexico, the Philippines, Pakistan, Nigeria, and the like. In fact, the initiative concerns only 11 percent of the total population of developing countries... It must be noted "that to benefit from the HIPC initiative, the countries concerned had to be free of arrears to the IMF and the World Bank. Countries applying for the HIPC initiative must adopt a Poverty Reduction Strategy Paper (PRSP), under the auspices of the IMF and the World Bank. This document must indicate the use that will be made of the resources made available by this initiative, and contain a certain number of commitments relating to the implementation of classical structural adjustment measures: privatization of public companies, reduction of the salaried workforce, reduction of grants, elimination of government subsidies and deregulation of the labour market. In other words, the whole arsenal of ultra-liberal measures which have contributed to the impoverishment of African populations, to the degradation of social services, to fall in life expectancy of over seven years, to the return of diseases we had thought eradicated, to increased unemployment for young graduates, to setting back industrialisation, and to the creation of chronic food shortages.
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