HIPC Initiative (Heavily Indebted Poor Countries)
General overview
The Heavily Indebted Poor Countries (HIPC) Initiative was adopted in 1996 at the G7 Summit in Lyon with the aim of ensuring the medium- to long-term sustainability of external debt in low-income countries.
From the outset, the program set as its core objective the provision of a comprehensive solution—covering the cancellation of all categories of a country’s debt, including obligations towards creditor governments, international financial institutions, and private creditors—to restore these countries’ external debt to a sustainable level, thereby eliminating the burden of multi-year budgetary commitments that the countries concerned would have been unable to meet.
The Initiative does not provide for full debt cancellation, but rather for debt reduction calibrated to the relative weight of the debt, with interventions determined on a case-by-case basis as to scope and scale.
The June 1999 G7 Summit in Cologne expanded the scope of the original initiative by providing for debt cancellation for HIPC countries amounting to USD 28.2 billion (USD 14.1 billion borne by multilateral creditors and USD 14.1 billion by bilateral creditors), giving rise to what was subsequently termed the “Enhanced HIPC Initiative”.
In 2005, at the Gleneagles Summit, the G8 countries launched a complementary initiative to HIPC—the Multilateral Debt Relief Initiative (MDRI)—which provides for the cancellation of 100 per cent of the debt owed by HIPC countries to the International Development Association (IDA), the African Development Bank, and the International Monetary Fund.
The MDRI is primarily intended to assist debtor countries in achieving the Millennium Development Goals (MDGs) identified within the United Nations framework. The IMF, responding to requests from several developing countries, decided to extend the initiative to non-HIPC countries with an annual per capita income below USD 380.
Italy, which was among the promoters of the HIPC Initiative, has supported the MDRI from the outset and has expressed its full willingness to contribute to its financing.
Eligibility criteria for access to the HIPC Initiative
To qualify for the HIPC Initiative, debtor countries must meet the following criteria:
- eligibility for loans from the World Bank’s International Development Association (IDA), i.e. IDA-only countries [1].
- an unsustainable debt burden, as determined on the basis of specific debt sustainability analyses carried out by experts from the international financial institutions.
- implementation of a set of economic policy measures within the framework of a reform program supported by the IMF and the World Bank.
- preparation of a Poverty Reduction Strategy Paper (PRSP) – or at least an Interim PRSP – through a participatory process involving civil society, donors, and international organizations.
Once a country has made significant progress towards meeting these criteria, it is declared eligible by the IMF and the World Bank, marking the attainment of the so-called “decision point”. At this stage, the international community commits to providing the debt relief necessary to bring debt indicators back to sustainable levels, and the country begins to benefit from partial debt cancellation (interim debt relief).
The cancellation of the remaining debt is granted by creditors upon the declaration of the so-called “completion point”. To reach this stage, the country must have successfully implemented the key reforms agreed at the decision point, maintained an adequate level of macroeconomic stability, and effectively implemented the PRSP for at least one year.
The most recent country to reach the decision point — the 37th in chronological order — was Somalia.
Following the signing, on 31 March 2020, of the multilateral agreement between Somalia and its Paris Club creditors, the relevant bilateral agreements were subsequently concluded for the cancellation of debt service falling due by 31 December 2020.
Italy, long at the forefront of efforts to support Somalia’s political stabilization and economic and financial reconstruction, deemed it appropriate to proceed with the negotiation of a bilateral agreement with the Somali Government. This agreement, recently concluded and entered into force on 11 March 2021, granted Somalia a one-off cancellation of the total stock of arrears, consisting of principal and interest on commercial claims managed by SACE and on claims extended as development assistance by what is now Cassa Depositi e Prestiti. Italy also played a pivotal role in achieving this outcome through the provision of a bridge loan, which made it possible to clear Somalia’s arrears to the IMF—an operation that was indispensable for enabling access to IMF-supported assistance programs.
In December 2023, Somalia reached the completion point under the HIPC Initiative. Eritrea and Sudan are potentially eligible for debt relief but have not yet initiated the process.
Related links
Factsheet – Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative (imf.org)
Heavily Indebted Poor Countries (HIPC) Initiative (worldbank.org)
G20 Debt Service Suspension Initiative (Debt Service Suspension Initiative – DSSI)
Italy was among the promoters of the Debt Service Suspension Initiative (DSSI), launched by the G20 in April 2020 in response to the pandemic crisis.
The DSSI provides for a temporary moratorium on debt service payments by the poorest and most heavily indebted countries (potentially 77 countries, i.e. all IDA [2] and/or Least Developed Countries – LDCs [3]). To access the initiative, a candidate country must have an IMF financing program in place or have requested one. The objective is to free up resources for social and health expenditure. Participation by all official creditors is envisaged, while participation by private creditors is encouraged on a voluntary basis.
The moratorium covers payments of principal and interest falling due from beneficiary countries between 1 May and 31 December 2020.
In October 2020, Paris Club members and the G20 agreed to extend the DSSI (the so-called “DSSI Extension”) until 30 June 2021; in April 2021, a further and final six-month extension was approved, extending the initiative until 31 December 2021.
Among the countries benefiting from the DSSI, ten are debtors vis-à-vis Italy. As of May 2021, the relevant bilateral implementation agreements had been concluded with Angola, Ethiopia, Djibouti, Pakistan, and Yemen, while signature with Kenya was pending. Ghana, Guyana, Honduras, and Nicaragua have not submitted a request to date.
Related links
Debt Service Suspension Initiative (worldbank.org)
Questions and Answers on Sovereign Debt Issues (imf.org)
Common Framework for Debt Treatments beyond the DSSI
The G20 and the Paris Club approved, on 13 November 2020, a “Common Framework for Debt Treatments beyond the DSSI” following an extraordinary meeting of G20 Finance Ministers.
The initiative was launched to address the need of many low-income countries, in the wake of the global pandemic, to tackle heightened medium-term debt sustainability and liquidity challenges.
The Common Framework is based on a multilateral approach inspired by the principles and established practices of the Paris Club. It is to be implemented in coordination with creditors that are not members of the Club, an aspect to be assessed on a case-by-case basis.
Coordination with private creditors is also a key element of the initiative. Countries eligible under the DSSI criteria (potentially 77 countries, i.e. all IDA and/or LDCs) may access the Common Framework.
Eligible debt includes all public and publicly guaranteed debt with an original maturity of more than one year.
Any agreement on debt treatment with the requesting country must be consistent with, and aligned to, the program that the country has in place with the IMF. In this context, the Fund must receive “financing assurances” from creditor countries, whereby they commit to providing the necessary debt treatment.
Under the Common Framework, the first country to request access to the new program, at the beginning of 2021, was Chad, followed by Ethiopia and Zambia.
Unlike the DSSI, which provides solely for a moratorium on debt service payments, the Common Framework provides the restructuring of debt.
In practice, implementation of the Common Framework requires the signing by all creditor countries of two documents:
• a Memorandum of Understanding between the creditor countries and the debtor country;
• a bilateral agreement between each creditor country and the debtor country, setting out in detail the amounts concerned and the new debt repayment schedules.
To date, four countries have requested debt treatment under the Common Framework: Chad, Zambia, Ghana, and Ethiopia.
The respective Memoranda of Understanding between creditor countries and debtor countries were signed in January 2023, April 2024, January 2025, and July 2025.
Following the signature of the Memoranda of Understanding, Italy promptly initiated negotiations on bilateral agreements with the Governments of Zambia, Ghana, and Ethiopia. The conclusion of these agreements is expected by 2026.
Related links
Paris Club – Endorsement with the G20 of a common framework for coordinated debt treatments
Notes
[1] The 41 HIPC countries are a subset of the broader group of developing countries (approximately 78) classified as IDA-only (countries with an annual per capita income of up to USD 925), mostly located in Sub-Saharan Africa and Latin America.
[2] This refers to the group of countries eligible for lending from the International Development Association (IDA), the World Bank institution that assists the world’s poorest countries. Eligibility for IDA support depends primarily on a country’s level of poverty, measured on the basis of its Gross National Income (GNI) per capita.
[3] Since 1971, the United Nations has recognised Least Developed Countries (LDCs) as a category of states considered to be at a severe disadvantage in their development process for structural, historical, and geographical reasons. There are currently 46 countries classified as LDCs.