Debt Sustainability in African HIPCs: Deteriorating Prospects

The HIPC, established by the International Monetary Fund (IMF) and World Bank in 1996, provided multilateral debt relief to several poor, developing countries, mainly in Africa, with unsustainable external debt burdens. The HIPC comprised a two-stage mechanism: a decision point, a formal decision on a country’s eligibility for relief, which released interim relief, and was based on several criteria, including a period of good performance under IMF and World Bank programs; and a completion point (CP), when countries received irrevocable debt relief. In 2000, the HIPC initiative provided African and other eligible countries with a fresh start. Evidence two decades later indicates that in about half of all African HIPCs, gains have been durable and sustained. But for the balance, risks have re-emerged and are likely to deteriorate further, with some countries facing the real prospect of a renewed debt trap. Several key actions, taken promptly, can help limit further deterioration.