Debt relief

The debt relief is part of a much larger effort that also includes the flow of financial assistance to meet the development needs of low-income countries to maintain and ensure debt sustainability over time. For the reduction of debt have a tangible impact on poverty, additional resources should be spent on programs that benefit the poor.

Increased social spending. Before the HIPC Initiative, eligible countries were, on average, spending on debt service slightly higher than spending on health and education combined. Today, they have increased markedly their expenditures on health, education and other social services. On average, such spending is now equivalent to over six times the amount of the payments of debt service.

Reducing debt service. In the case of the 35 countries that receive debt relief, payment of debt service have been reduced on average of around 2 ½% of GDP between 1999 and 2007. It is expected that the debt of these countries will be reduced by about 90% after receiving all the debt relief (including granted under the Initiative for Multilateral Debt Relief Services).

Improved management of public debt. The debt relief has significantly improved the debt situation of the countries that have already reached the completion point, and indicators of debt of these countries have been reduced to a level below those of other HIPC countries or not participating in the Initiative. However, many of them remain vulnerable to shocks, particularly those affecting exports, as was observed during the current global economic crisis. Clearly to reduce debt-related vulnerabilities, these countries should be cautious when applying for credit and strengthen its management of public debt.