Heavily Indebted Poor Countries Research Articles

China’s role in sovereign debt restructuring

As the world’s largest bilateral lender to low- and middle-income countries (LMICs), China faces challenges dealing with some sovereign borrowers in debt distress under the Belt and Road Initiative (BRI). The current global sovereign debt landscape suggests that the fundamental challenge of sovereign debt restructuring in the developing world is not China, but rather how to equitably address unsustainable debt owed to multiple categories of creditors. Nonetheless, by offering early-stage debt relief, China can alleviate the burden on borrowers who disproportionately owe significant debt to China and prevent trapping itself in unpaid debts. China’s policy decision will determine whether it can avoid the same mistake that Western creditors made of eventually losing all financial claims on many debt-distressed, heavily indebted poor countries (HIPCs) by the mid-2000s. Furthermore, a considerate approach by China is key to achieving the dual goals of mitigating LMICs’ debt distress and vulnerabilities to climate change by applying a climate-centered approach toward sustainable socio-economic development. China can contribute to creating better global debt governance, which should go hand in hand with global environmental governance and have critical economic, political, and social implications.

From Reform to Resurgence on Somalia's Journey to Economic Stability and Global Confidence

Examining Somalia's journey from political instability to economic recovery, this analysis focuses on the significant impact of recent efforts to relieve the country's debt burden. A major achievement was Somalia's successful inclusion in the Heavily Indebted Poor Countries (HIPC) initiative, which granted the nation relief from repaying its debts. This article aims to explore the complex landscape, thoroughly examining the essential role of debt relief. It dissects the factors contributing to economic stability, evaluates the newfound global confidence, analyses elements enhancing investor appeal, and navigates the challenges and opportunities defining the nation's economic resurgence. The challenges arising from the debt write-off include the effective implementation of economic reforms, managing heightened expectations, and addressing the persistent historical political instability that requires ongoing attention. Despite these challenges, opportunities emerge, providing Somalia with the chance to strategically reallocate resources to vital sectors, enhance its attractiveness to investors, and engage in potential global collaborations. This exploration concludes by outlining policy implications for Somalia's policymakers. It emphasizes the importance of sustainable economic reforms, initiatives promoting political stability, prudent resource allocation, the implementation of investor-friendly policies, active participation in international collaborations, and targeted efforts to promote investment. Addressing these policy implications could empower Somalia to transform challenges into catalysts for sustained economic growth and development, charting a course toward a prosperous and resilient future

Somalia's New Horizon: Joining the East African Community (EAC)

Somalia's recent participation in the EAC brings forth transformative opportunities and challenges across various sectors. This report delves into EAC integration, focusing on Somalia's opportunities and challenges, along with policy implications. It emphasizes the importance of comprehending Somalia's dynamic integration into the EAC for informed decision-making and strategic planning. As a member of the EAC Customs Union, Somalia gains access to a larger market, stimulating economic growth and fostering cross-border collaborations. The removal of trade barriers and participation in collaborative ventures offer resilience and connectivity to the global economy. The EAC Common Market reinforces fairness, equity, and cooperation, ensuring Somalia's equal treatment, transparency, and active engagement. Participation in the EAC Monetary Union addresses economic challenges, including dollarization and counterfeit currencies, and will promote economic stability. Somalia's involvement in the Political Federation provides support for lasting peace and recovery from years of conflict. Despite these advantages, challenges arise, including aligning regulations, adapting to increased competition, and navigating the complexities of regional cooperation. The economic landscape of Somalia is rapidly evolving, with notable achievements such as the UN Security Council's decision to end the arms embargo after three decades. Moreover, the International Monetary Fund (IMF) recognizes Somalia's strong implementation of wide-ranging reforms, strengthening key economic and financial policy institutions. This progress positions Somalia for potential debt relief at the Heavily Indebted Poor Countries (HIPC) Completion Point in December 2023. These milestones underscore Somalia's commitment to economic development, international trade, and the defeat of terrorism. The Political Federation in EAC brings both opportunities and challenges, requiring Somalia to balance national priorities with regional integration efforts, harmonize governance practices, and ensure political stability

Multilateral Debt Relief for Clean Ocean Energy

As states bring more and more offshore wind online and build renewable energy capacity, the promise of large-scale ocean renewables such as offshore wind is not shared equally across all coastal states. This paper examines the situation of coastal states identified by the World Bank as Heavily Indebted Poor Countries (HIPCs) in the context of the boom in offshore wind investment. Specifically, the paper looks at the limited access to renewable energy production exacerbated by ongoing public debt loads, and the almost complete lack of access to clean ocean energy development for the poorest coastal states. Using statistics from the International Renewable Energy Agency and datasets from the Our World in Data project, this paper highlights that the most indebted coastal states only have access to 0.69% of the available renewable energy even though these states represent 4.6% of the global population. In the context of state responsibility for failing to meet climate obligations under the UNFCCC, this paper argues that a sovereign debt relief package offers an equitable remedy to HIPC coastal states, many of whom owe a substantial portion of their GDP as external public debt. The debt service payments would be invested in the upfront capital costs of ocean-based clean energy. These types of debt relief arrangements address international state responsibility and offer the dual co-benefits of long-term economic development and low-carbon sustainability.

The Impact of External Debt on Human Capital Development and GDP Growth in HIPCs: a Comprehensive Approach

The growth theorists argue that human capital development/accumulation (HCD/A) is vital for economic growth. However, the level of external debt accumulation determines HCA and its effect on economic growth. Besides, the impact of external debt on growth is still debatable. Further, the external debt-growth relationship could be non-linear instead of linear, and external debt can affect growth through the HCD channel. Therefore, this study aims to look at the impact of foreign debt on HCD and growth in heavily indebted poor countries (HIPCs) employing seemingly unrelated regressions (SUR) and other alternative simultaneous equations models (SEMs) from 1990–2017. The result indicates the link between foreign debt and HCD is negative and non-linear, but only non-linearity is observed between foreign debt and growth. Besides, external debt affects HIPCs growth through the HCD channel. Therefore, the study recommends essentializing solid macroeconomic policies, strengthening institutional performance, appropriate debt management strategies, and investing borrowed funds in productive projects.

The role of COVID‐19 in worsening the debt sustainability in developing economies – The case of Ghana and Kenya

AbstractThe SARS‐CoV‐2 coronavirus pandemic has raised public debt sustainability issues, especially for Heavily Indebted Poor Countries (HIPC). Developing countries with limited fiscal space have had to take on significant external debts to help deal with the negative effects of the pandemic. This has led to further increases in the debt levels of these countries, with the potential to trigger a debt default. Addressing these issues, this study uses a framework for fiscal policy and public debt sustainability analysis. The results confirm the impact of the SARS‐CoV‐2 coronavirus pandemic on the debt levels of Ghana and Kenya. This study recommends the creation of domestic fiscal buffers and fiscal space toward the attainment of long‐term debt sustainability, contrary to the popular view of offering debt relief to these countries.

A Comparative Analysis of External Debt in the East African Community Countries

Borrowing to finance public infrastructure has pushed debt levels to record highs within the East African Community (EAC) countries. Total external debt stock grew by 333.38 percent between 1970 and 2020. The rise in external debt exceeded growth in GDP and exports in all the countries except for the Democratic Republic of Congo between 2010 and 2020. The situation could have been worse had it not been for a massive external debt cancellation by the international community under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) programmes that benefitted all the EAC countries except Kenya. Virtually all the countries are increasingly borrowing more long-term than short-term external loans. Multilateral and official bilateral creditors continue to be the major financiers in all the countries even though these countries are gradually diversifying their sources of borrowing. All the EAC countries except Burundi had publicly guaranteed private sector external debt from commercial banks between 2010 and 2020. Three of the countries, Kenya, Tanzania and Rwanda, had nonguaranteed private sector external debt during the period. Two countries, Kenya and Rwanda, have joined a fast growing number of African countries that are issuing international sovereign bonds. The EAC countries are in a vulnerable position, with public external debt already at elevated levels. Trends in some of the external debt ratios including debt-to GDP, debt-to-exports, and debt service-to-exports ratios suggest that these countries could face challenges in servicing their external debts and meeting other foreign exchange obligations. High levels of external debt seem to have led to a vicious cycle of debt. Even after benefitting from the HIPC and MDRI debt relief programmes, the countries are once again facing high debt ratios. In light of the above findings, governments of the EAC countries should: look for improved terms on new loans; restructure external commercial loans that have heavy maturities and high interest rates; continue to diversify sources of external financing to reduce high dependency on expensive loans; make concerted efforts to increase concessional public external debt; explore non-debt creating financing options for public investments such as Public Private Partnerships; and look into refinancing expensive debt with debt on more favourable terms. Keywords : External debt, multilateral and bilateral debt, publicly guaranteed debt, external debt indicators, vicious cycle of debt DOI: 10.7176/JESD/14-4-01 Publication date: February 28 th 2023

Prospects and obstacles to the restructuring of Ukraine’s external state obligations in the conditions of war

The article analyzes the structure of Ukraine’s external debt liabilities for the period from 2011 to 2021 and in the period since the beginning of the full-scale invasion. It is determined that the amount of state external liabilities, taking into account projected data, may exceed 70% of this country’s GDP, which will become the dominant form of both attracting financial resources to the state budget and threatening the state security. The authors provide an assessment of the difficulties of restructuring the external debt in terms of the specific weight of the creditor and the weight of short-term payments for the period 2022-2023. It is concluded that at the beginning of 2022, the largest specific weight in the structure of external liabilities was the debt for issued securities for foreign markets and liabilities to international financial organizations and the EU. The main payments for them fall on the third quarters of 2022 and 2023 (3.0 and 3.6 billion USD, respectively), and the payment of interest accounts for 30% of total. The article considers possible mechanisms of write-off and restructuring of the state's external debts, taking into account international experience and with regard to the crises and military conflicts. The following mechanisms for write-off and restructuring of foreign debt are analyzed: Brady Plan for debt restructuring of developing countries; and debt relief programs for the poorest countries - HIPC (heavily indebted poor countries) and MDRI (The Multilateral Debt Relief Initiative). The authors identify the guidelines of work on minimizing Ukraine's external liabilities in 2022-2023. A conclusion is made regarding the initiation of negotiations on the restructuring and write-off of the external debt burden to ease the payments on external debts, including GDP warrants. Such a task should be carried out as soon as possible before the period of the largest payments and taking into account the existing support of the governments of leading foreign countries.

Can Western Donors Constrain Repressive Governments? Evidence from Debt Relief Negotiations in Africa

There is limited evidence that reliance on foreign aid from Western donors compels repressive governments to embrace democratic reforms and respect citizens’ rights. However, donors have another, potentially more powerful source of financial leverage: debt relief. This paper exploits two features of the Heavily Indebted Poor Countries (HIPC) debt relief initiative, launched by the International Monetary Fund and World Bank in 1996, to probe whether Western leverage has constrained repression across Africa. First, the Bretton Woods institutions initiated debt relief negotiations with virtually all African governments. Second, many recipients were in power long before HIPC negotiations began and remained after they concluded. Using a differences-in-differences estimator, I show that the daily rate of repression fell by between 10% and 30% during debt relief negotiations. This effect holds across autocracies and democracies, and during periods of sustained protests. When debt crises were more severe, debt relief negotiations were even more constraining.

Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems

Abstract When the COVID-19 pandemic added to already elevated debt vulnerabilities in low-income countries, the G20 launched the Debt Service Suspension Initiative (DSSI) and the Common Framework for Debt Treatments beyond the DSSI, which have provided limited relief so far. For several countries, deeper and more wide-ranging debt treatments will likely be needed to secure future debt sustainability. This paper looks at the Heavily Indebted Poor Countries (HIPC) initiative, the largest and most comprehensive debt relief effort for low-income countries to date, as a potential reference point for the 2020s. While the HIPC initiative appears to have been a qualified success, its replication in the current context would be infeasible and undesirable. Creditor base heterogeneity justifies a more flexible, differentiated approach to debt restructuring. Yet, the HIPC experience holds valuable lessons. “Delay and replay” tendencies should be avoided. Involving commercial creditors is a real challenge, requiring carrots and sticks. And imposing extra conditionality on debt relief proceeds could be helpful but should not be overdone. Even if the Common Framework is unlikely to suffice in case of a systemic debt crisis, its inter-creditor dialogue could perhaps serve as the basis for a more inclusive advisory body or forum for debt restructuring.

Перспективи та перешкоди реструктуризації зовнішніх державних зобов'язань України в умовах війни

The article analyzes the structure of Ukraine’s external debt liabilities for the period from 2011 to 2021 and in the period since the beginning of the full-scale invasion. It is determined that the amount of state external liabilities, taking into account projected data, may exceed 70% of this country’s GDP, which will become the dominant form of both attracting financial resources to the state budget and threatening the state security. The authors provide an assessment of the difficulties of restructuring the external debt in terms of the specific weight of the creditor and the weight of short-term payments for the period 2022-2023. It is concluded that at the beginning of 2022, the largest specific weight in the structure of external liabilities was the debt for issued securities for foreign markets and liabilities to international financial organizations and the EU. The main payments for them fall on the third quarters of 2022 and 2023 (3.0 and 3.6 billion USD, respectively), and the payment of interest accounts for 30% of total. The article considers possible mechanisms of write-off and restructuring of the state's external debts, taking into account international experience and with regard to the crises and military conflicts. The following mechanisms for write-off and restructuring of foreign debt are analyzed: Brady Plan for debt restructuring of developing countries; and debt relief programs for the poorest countries - HIPC (heavily indebted poor countries) and MDRI (The Multilateral Debt Relief Initiative). The authors identify the guidelines of work on minimizing Ukraine's external liabilities in 2022-2023. A conclusion is made regarding the initiation of negotiations on the restructuring and write-off of the external debt burden to ease the payments on external debts, including GDP warrants. Such a task should be carried out as soon as possible before the period of the largest payments and taking into account the existing support of the governments of leading foreign countries.

Tomorrow's Debt, Today's Duty: Debt Sustainability as Anticipatory Global Governance

ABSTRACT Sovereign debt projections permeate international economic affairs. While concerns about debt sustainability motivate much policy analysis and commentary, this article unpacks the anticipatory practices through which (un)sustainable future debt is turned into a governance object in the first place. To this end, I examine the joint Debt Sustainability Analysis (DSA) of the International Monetary Fund (IMF or Fund) and the World Bank (or Bank). I empirically focus on the cases of Sudan and Somalia, both of which are low-income countries (LICs) classified as weak performers under the Fund-Bank Heavily Indebted Poor Countries (HIPC) Initiative. Based on documentary evidence from twelve DSAs, I argue the IMF and World Bank's projections reflect a contractual understanding of debt, embrace economic growth as a panacea for chronic indebtedness and downplay structural constraints on debt sustainability. The resulting futures reveal some of the political choices inscribed in seemingly neutral instruments of anticipatory global governance.

1991'DEN 2002'YE KADAR SIERRA LEONE İÇ SAVAŞI'NIN DEMOGRAFIK VE EKONOMIK ETKILERI.

What are the Demographic and Economic Impacts of the Sierra Leonean Civil War from 1991 to 2002? The civil war in Sierra Leone caused deaths estimated between 100,000 and 200,000, refugees surrounded 820,000 people and displaced persons surrounded more than 1 million and as well as declines in economic performance during the civil war period. Sierra Leone remained in Heavily Indebted Poor Countries (HIPC) with an often negative annual economic growth sawtooth. Between 1991 and 2001 Sierra Leone recorded a negative annual economic growth rate averaging around -2%. At the same time, its Gross Domestic Product per Capita per year averaged around US$300 and its Gross National Product per Capita per year averaged around US$200. The demographic and economic impacts of the Sierra Leonean civil war were negative both socially and economically. By the end of this civil war in 2002, Sierra Leone's population and economy had plummeted. This demographic reduction and the increase in poverty are the harmful consequences of the civil war experienced by this country. During this civil war the people were not in peace and security to exercise economic activities. Peace and security are adequate conditions for social and economic development. So, theoretically and analytically, through demographic and economic data for each year between 1991 and 2002, we will try to highlight the demographic and economic impacts of the Sierra Leonean civil war.

The impact of external debt on total factor productivity and growth in HIPCs: non-linear regression approaches

PurposeThe purpose of this study is to provide an empirical analysis of the impact of external debt on total factor productivity (TFP) and growth along with the TFP channel through which external debt affects the growth of heavily indebted poor countries (HIPCs).Design/methodology/approachThis study uses panel data econometrics; basically, the seemingly unrelated regression (SUR) and alternative non-linear (panel threshold) models. For robustness check, it also uses panel-corrected standard errors, feasible generalized least squares and SUR (using alternative variables).FindingsExternal debt significantly reduces both TFP and growth. Besides, it confirms that the relationship between external debt and TFP and gross domestic product growth is non-linear. Further external debt can affect the growth of HIPCs through the TFP channel. However, the threshold model result reveals weak evidence of threshold values although there are some threshold values of 67 and 54 for TFP and growth models, respectively.Originality/valueTo the best of the authors’ knowledge, this is the first study on most concerned countries (HIPCs) that shows a detailed and complete analysis of the TFP channel and the impact of external debt on growth. Thus, it provides appropriate and sound policies that consider the unique characteristics of the countries. Unlike most previous findings, this study does not support an inverted U-shape relationship between external debt and growth. Further, it provides insights into the relationships among TFP, external debt and growth. Moreover, it considers basic panel econometric tests like cross-sectional dependence, uses a non-linear simultaneous equations model along with the alternative non-linear model and is supported by different robustness checks.

Linking external debt and renewable energy to environmental sustainability in heavily indebted poor countries: new insights from advanced panel estimators.

There are numerous studies on the linkage between renewable energy and environmental sustainability. These studies have tried to show how renewable energy is relevant in curbing the environmental difficulties associated with climate change. However, the role of external debt is seldom considered in the nexus. As such, this study applies advanced estimation techniques compatible with two core panel data issues (cross-sectional dependence and heterogeneity) to investigate the role of external debt in the growth-energy-emissions relationship in thirty-three heavily indebted poor countries (HIPC) from 1990 to 2015. The findings of the study reveal that economic growth increases emissions thereby degrading the environment, while renewable energy ensures environmental sustainability by abating CO2 emissions. Further findings from the study suggest that external debt increases CO2 emissions in HIPC across the three estimators. The country-wise results reveal that economic growth deteriorates the environment in all the countries except in Burkina Faso, Congo, Mali, Mauritania, Nicaragua, and The Gambia. Also, the result reveals a bidirectional causal relationship between external debt and economic growth, CO2 emissions and economic growth, external debt and CO2 emissions, and renewable energy and economic growth. This study argues that the consumption of clean energy sources and strong institutional quality could help mitigate the trade-offs between economic growth and environmental quality and also curtail the negative effects of external debt on the environment. The limitations of the study and directions for future research are discussed.

Sudan: Enhanced Heavily Indebted Poor Countries (HIPC) Initiative-Decision Point Document

Sudan: Enhanced Heavily Indebted Poor Countries (HIPC) Initiative-Decision Point Document

Welfare implications of external debt and capital flight in Sub-Saharan Africa (Evidence using panel data modelling)

AbstractThe countries in Sub-Saharan Africa (SSA) have experienced a positive growth rate of over five per cent per year, on average, since their transition from the Heavily Indebted Poor Countries Initiative in 1996 and the Multilateral Debt Relief Initiative in 2006. Despite this growth, poverty and inequality are still very high. Employing the Driscoll – Kraay standard panel estimation method and dataset from 1990 to 2015, this paper sets out to examine the implications of external debt and capital flight on the general welfare of the people. The estimation results reveal that both external debt and capital flight have a welfare inhibiting effect, suggesting that increases in external borrowing or capital flight may lead to a reduction in the welfare of the people in the sub-region. The study, therefore, recommends to policymakers and government in the sub-region the need to tackle the revolving nature of external borrowing and capital flight and take steps to halt all channels through which deservingly acquired capital leaves the sub-region.

Does debt relief “irresistibly attract banks as honey attracts bees”? Evidence from low-income countries’ debt relief programs

The Covid-19 crisis has recently rekindled discussions about debt relief, leading official lenders to grant a moratorium on low-income countries’ external public debt service. Private creditors, which had massively invested in LICs (especially in Africa), have been so far relatively spared. But would they keep lending to these countries if a new wave of debt write-offs were to occur? Building on the two largest debt relief programs for LICs, namely the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI), we investigate whether debt relief leads international private creditors to withdraw or to resume lending to beneficiary governments. Using a difference-in-differences approach, our results suggest that debt relief has fostered borrowing from private creditors, and identify the absence of reputational effects and the short-term horizon of private creditors as the key drivers that made renewed access to the credit market possible.

Post-initiative heavily indebted poor countries (HIPC) public debt sustainability: Empirical evidence from Togo

The objective of this paper is to analyze the sustainability of Togo's public debt in the long term after the Heavily Indebted Poor countries (HIPC) initiative. The study period covers years from 1994 to 2019. Based on stationarity and cointegration tests, the results show that the Togolese government's debt is not very sustainable in the long term. Indeed, the persistence of the budget deficit due to insufficient internal resources to meet the increase in budgetary expenditure, particularly investment expenditure, has forced the Togolese government to resort to borrowing, leading to an increase in debt levels in recent years. In view of these results, budgetary rigor is more than necessary through the contraction of budgetary expenditure, but above all, the progressive taxation of the informal sector and increased mobilization of taxes on property.

External debt in developing countries since HIPC and MDRI: What are the driving factors?

AbstractThis article analyses the trend of external debt and its drivers in the heavily indebted poor countries (HIPCs) in the post‐debt relief initiatives. Focusing on the largest component of external debt in HIPCs, that is, public and publicly guaranteed external debt, the data reveal that these countries have started accumulating external debt again few years after debt relief under HIPC and MDRI. Specifically, though the average external debt‐to‐GDP ratio has declined by 22% points between 2005 and 2016, since 2012, however, external debt has steadily increased in HIPCs. Using panel data over the period 2005–2016, the article finds that economic growth rate, nominal exchange rate and remittance inflows negatively and significantly affect the ratio of external debt‐to‐GDP. The article also finds the persistence of external debt. However, more preference has been given to countries with better policies and institutions for the access to external debt.