Ghana among 36 countries eligible for HIPC initiative

Ghana among 36 countries eligible for HIPC initiative

The International Monetary Fund says Ghana qualifies among other countries to access, or eligible to receive Heavily Indebted Poor Countries (HIPC) Initiative assistance as at January 2023.

Among the 36 countries, majority from Sub-Saharan Africa are: Benin, The Gambia, Niger, Togo, Burkina Faso, Chad, Liberia, Tanzania, Zambia, Mali, Senegal, Rwanda and Cameroon.

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Countries that accept to be part of the HIPC will receive some form of debt relief but with stiffer conditionalities.

It is not clear whether the government is keen on being part of the HIPC programme. In 2002, Ghana opted for the HIPC initiative which resulted in most of its debts cancelled.

Ghana’s economy is currently facing serious challenges, key among them being a rising and unsustainable debt levels which has crossed over 90 per cent of gross domestic (GDP).

This has prompted the country to seek a US$3 billion IMF bailout programme. The country’s ability to secure the IMF bailout is however hinged on its ability to restructure its debt which stood at GH¢575.7 billion as at November last year according to the Bank of Ghana.

A Domestic Debt Exchange Programme which was introduced to restructure the country’s domestic debt is faced with stiff opposition from various stakeholders. The government, however, appears to have made some significant inroads in this regards, getting all the relevant stakeholders with the exception of the individual bondholders to agree to a deal.

On the external front, the country is currently in discussions with its international partners seeking debt restructuring to create fiscal space.

Launched in 1996 by the IMF and World Bank, the HIPC is to ensure that no poor country faces an unmanageable debt burden.

In 2005, to accelerate progress toward the United Nations’ Sustainable Development Goals, the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative.

This allows countries completing the HIPC Initiative process to receive 100 per cent relief on eligible debts by the IMF, the World Bank, and the African Development Fund. In 2007, the Inter-American Development Bank provided additional (“beyond HIPC”) debt relief to the five HIPCs in the Western Hemisphere.

Criteria for HIPC initiative

To participate in the HIPC Initiative, countries need to meet certain criteria, commit to policy changes to reduce poverty, and demonstrate a record of doing so.

To be considered for HIPC Initiative assistance, a country must be eligible to borrow from the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust, which provides loans to low-income countries at concessional rates.

The country must also be faced with an unsustainable debt burden that cannot be addressed through traditional debt-relief mechanisms; have a track record of reform and sound policies through IMF- and World Bank-supported programs.

The country must also develop a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process.

Benefits of HIPC initiative

Debt relief is part of a larger effort to address the development needs of low-income countries.

For debt reduction to have a tangible impact on poverty, the additional money needs to be spent on programs that benefit the poor.

Before the HIPC Initiative, on average, eligible countries were spending slightly more on debt service than on health and education combined.

Since the initiative, they are spending about five times more on health, education, and other social services than on debt service.

For the 36 countries receiving debt relief, debt service paid declined by about 1.5 percentage points of GDP between 2001 and 2015.

More recently, with the increase in public debt in low-income countries, debt service burdens have started to rise, although they still remain 1 percentage point below the pre-HIPC levels in 2017.

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Who funds the HIPC Initiative?

The IMF’s share of the cost is financed by bilateral contributions and from IMF resources, mainly investment income on the proceeds from off-market gold sales in 1999, which were deposited to the IMF’s PRGT-HIPC Trust.

Resources in the trust have been insufficient to finance debt relief to the remaining two countries with protracted arrears to the IMF, Somalia and Sudan, which have met the initial conditions for debt relief and reached the decision point.

The original financing plan did not include the cost of debt relief to countries with protracted arrears to the IMF.

In December 2019 and May 2021, the IMF Executive Board approved financing plans that would help mobilize the resources needed for the IMF to cover its share of debt relief to Somalia and Sudan, respectively. Eritrea is also eligible for HIPC debt relief but does not have financial obligations to the IMF.

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