The Bank Group is a key participant in the internationally coordinated debt relief programs of the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). The principal objective of the Bank Group’s participation in these initiatives is to help reduce the debt burden of eligible Regional Member Countries (RMCs) and free up resources for poverty reduction and development programs.
The Heavily Indebted Poor Countries (HIPC) Initiative
The HIPC Initiative provides a comprehensive debt relief to the 40 (of which 33 are in Africa) most heavily indebted countries pursuing policy adjustment and reform programs, after they have reached their decision and completion points. The Bank Group grants countries that qualify for debt relief under the HIPC Initiative an annual debt service reduction of up to 80 percent of debt obligations as they come due until the full amount of the committed debt relief has been provided.
As at end-March 2011, twenty six (26) RMCs (Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Congo Republic, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea Bissau, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Sao Tome & Principe, Senegal, Sierra Leone, Rwanda, Tanzania, Togo, Uganda, and Zambia) had reached their completion points under the HIPC Initiative. The Bank Group has provided or committed irrevocable HIPC debt relief of US$5.4 billion to these countries.
Four (4) countries (Chad, Comoros, Cote d’Ivoire and Guinea) are in the interim period (between the decision and completion point). The Bank Group has committed US$373 million of debt relief to these countries, of which up to 40 percent is provided during the interim period. Under exceptional circumstances, the HIPC debt relief limit during the interim period could be relaxed to provide incentives for the timely implementation of reform programs.
Three (3) pre-decision point countries (Eritrea, Somalia and Sudan) are yet to qualify for HIPC debt relief assistance. Two of these countries, Somalia and Sudan, have large arrears that have to be cleared before the countries could start receiving HIPC/MDRI debt relief. The Bank Group provides an opportunity for arrears clearance operation for pre-decision-point RMCs through its Fragile States Facility (FSF). The arrears cleared through the FSF are counted as part of the Bank Group’s debt relief assistance package. Since 2000, the Bank Group has provided arrears clearance support to Burundi, Central African Republic, Comoros, Cote d’Ivoire, Guinea-Bissau, Republic of Congo, Democratic Republic of Congo, Liberia, and Togo.
The overall cost of the HIPC debt relief committed by all participating creditors for the 40 countries that have already reached decision or completion point globally, is estimated to US$76 billon in nominal terms. The Bank Group’s estimated share is US$4 billion, equivalent to 7.2 percent of the total HIPC debt relief from all creditors. The Bank Group finances its participation in the HIPC Initiative using resources internally generated as well as donor contributions which are managed by the Debt Relief Trust Fund –DRTF – (formerly HIPC Trust Fund) and administered by the World Bank. The contribution from the Bank Group’s internal resources typically finances 15 – 20 percent of the estimated cost of each beneficiary country, while 80 – 85 percent of the cost is financed through donor contributions.
For more information, please find all documents related to this initiative here.
Multilateral Debt Relief Initiative (MDRI)
To help accelerate progress toward the Millennium Development Goals, the HIPC Initiative was supplemented by the MDRI in 2006. The MDRI provides 100 percent relief on eligible debts to the African Development Fund (ADF), the inter-American Development Bank, the International Development Association of the World Bank and the International Monetary Fund for countries completing the HIPC Initiative process. Under the MDRI, donors have committed to compensate the Bank Group “dollar for dollar” for the MDRI-related foregone ADF reflows over a 50-year MDRI period (2004 – 2054) to safeguard the long-term financial capacity of the ADF. The total amount of estimated ADF debts to be cancelled under MDRI is UA 7.1 billion (US$ 11.35 billion). As at end-march 2011, all 26 regional member countries that have reached their completion point and qualified for irrevocable HIPC debt relief assistance have benefited from MDRI debt cancelations of worth UA 6.3 billion (US$10.1 billion).