Heavily Indebted Poor Countries (HIPC)

The HIPC Initiative provides a comprehensive debt relief to the 40 (of which 33 are in Africa) most heavily indebted countries pursuing adjustment and reform programs, after they have reached their decision and completion points. The overall cost of the HIPC debt relief committed for the 29 African countries that have already reached decision or completion point, is estimated to US$35.7 billon, in NPV terms. The Bank Group’s share is US$3.6 billion, equivalent to 10.2 percent of the total HIPC debt relief from all creditors. Debt relief from World Bank and IMF are respectively US$9.3 billion and US$2.1 billion in NPV terms, accounting for 25.9 percent and 6.0 percent of the total debt relief, respectively (See Chart 1 for details on creditor’s assistance under the HIPC Initiative).

As at end March 2009, twenty (20) Regional Member Countries (RMCs) (Benin, Burkina Faso, Burundi, Cameroon, Ethiopia, Gambia, Ghana, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Sao Tome & Principe, Senegal, Sierra Leone, Rwanda, Tanzania, Uganda, and Zambia) had reached their completion points under the HIPC initiative. A total of US$19.2 billion of irrevocable debt relief has been committed to these countries. The Bank Group’s share of the HIPC assistance is US$2.0 billion, while that of the World Bank is US$6.8 billion. Central African Republic is expected to reach its completion points by end December 2009.

Nine (9) decision-point countries (Central African Republic, Chad, Congo Republic, Cote d’Ivoire, Democratic Republic of Congo, Guinea, Guinea Bissau, Liberia, and Togo) are in the interim period, ie, between the completion and decision point. Cote d’Ivoire is the latest RMC to reach decision point in March 2009. As a result, the Bank Group’s debt relief assistance to Cote d’Ivoire is estimated to US$199.5 million, in end-December 2007 NPV terms. The Bank Group has already delivered its full share of HIPC assistance through its arrears clearance operation in March 2009. As such, there will be no further interim debt relief from the Bank Group under the HIPC initiative (See Chart 2 for details on number of RMCs at different stages).

The Bank Group’s interim assistance limit is normally capped at 40 percent of the relief committed at the decision point. Under exceptional circumstances, the HIPC debt relief limit during the interim period could be increased to provide incentives for the timely implementation of reform programs. For example, the interim debt relief limits for Guinea Bissau and Guinea have been increased on their provision of relief by the Boards in July 2008. The interim debt relief assistance was raised to 50 percent and to 60 percent of the relief committed at the decision point for Guinea and Guinea-Bissau, respectively.

Furthermore, four (4) pre-decision point countries (Comoros, Eritrea, Somalia, and Sudan) are eligible, but they have not yet qualified for HIPC initiative. The Bank Group provides an opportunity for arrears clearance operation for pre-decision-point RMCs through its Fragile States Facility (FSF, previously PCCF) under the HIPC Initiative. The arrears cleared through the FSF are counted as the Bank Group’s expected debt relief. Since 2000, the Bank Group has cleared the arrears for Burundi, Central African Republic, Comoros, Cote d’Ivoire, Republic of Congo, Democratic Republic of Congo, Liberia, and Togo prior to their decision points.

In summary, as at March 2009, the total debt relief cost due to the 33 Regional Member Countries (RMCs) eligible to the HIPC Initiative from the Bank Group is estimated at US$3.9 billion in NPV terms, equivalent to about US$5.8 billion, in nominal terms. Nearly half of the cost (US$2.0 billion, in NPV terms) represents irrevocable debt relief to the 20 post-completion-point countries. The cost for the 9 interim countries amounts to US$1.7 billion. The estimated cost of the HIPC Initiative debt relief to the remaining 4 pre-decision-point HIPCs is estimated to be US$0.2 billion.

With regard to the financing of the HIPC debt relief initiative, the Bank Group has agreed with the HIPC Trust Fund on the following arrangements. The HIPC Trust Fund will fund the entire interim relief. The HIPC Trust Fund makes annual payments to the special account opened for this purpose by the Bank from which the debt relief payments are made. The contribution from the Bank Group HIPC account and the HIPC Trust Fund represents respectively 20 percent and 80 percent of the estimated debt relief assistance to the beneficiary countries. At end-December 2008, the total resources mobilized for the Bank Group through the HIPC Trust Fund amounted to US$2.5 billion. To date, the HIPC Trust Fund has adequate resources to meet entire contribution for irrevocable and interim debt relief assistance to the countries that have reached their completion and decision points, respectively. However, the HIPC Trust Fund will need about US$1.4 billion of new cash inflows to cover its contribution for overall debt relief to the 33 HIPC African countries.