Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative (Independent Evaluation Group Studies)

In the past decade, debt relief has become an increasingly significant vehicle for delivering development aid. This update builds on the findings of the 2003 independent evaluation of the Heavily Indebted Poor Countries (HIPC) initiative. It finds that many of the original conclusions remain relevant for the HIPC initiative and are potentially instructive for future debt relief initiatives. The Enhanced HIPC initiative cut debt ratios in half for 18 countries. But in eight of these countries, the ratios have come to once again exceed HIPC thresholds. Debt reduction alone is not a sufficient instrument to affect the multiple drivers of debt sustainability. Sustained improvements in export diversification, fiscal management, the terms of new financing, and public debt management are also needed, measures that fall outside the ambit of the HIPC initiative. Debt relief under HIPC has channeled additional development resources to qualifying countries – these countries have received an increased share of overall aid transfers. HIPC countries that are not yet at completion point face serious challenges in managing their economies. Maintaining policy performance is essential for these countries to reap the benefits of debt reduction.