Extended Project Qualification- the HIPC Initiative

As well as my three A-level subjects, I am completing the Extended Project Qualification (EPQ) which, in terms of UCAS points, is roughly equal to an AS Level. I decided to complete this project in order to better my university application, but also as it was one of my first opportunities to study a subject of my choice in depth. I chose to focus my project on the effectiveness of debt relief and in particular for Zambia. The title of my project is "Is the HIPC Initiative a Successful Method of Economic Reform? The Case of Zambia". The project will involve writing a dissertation which attempts to answer my research question. I will also have to complete an activities log and present my project once completed, all of which will be assessed. 

In order to complete the dissertation, I have had to complete large amounts of research as before I began the project I knew next to nothing about both the Zambian economy and the HIPC initiative. When starting my research, I found it challenging to find a source of information on the initiative and how it works, as most sources were either too vague or unreliable. After much more further research, I feel I was successfully able to compose a summary of the process. 

The World Bank provides debt relief to the poorest nations through the Heavily Indebted Poor Countries (HIPC) Initiative which was launched in 1996 by the World Bank’s International Development Association (IDA) and the International Monetary Fund (IMF). Its formation occurred as a result of the unsustainable debt burdens carried by many low income countries, which was sparked by a mass increase in global oil prices that began in 1973.

The initiative calls for the voluntary provision of debt relief by all creditors, and it aims to provide a fresh start to countries with a foreign debt that places too great of a burden on export earnings or fiscal revenues. It aims to reduce the constraint on economic growth and poverty reduction that had previously been imposed by debt build-up in these countries.  

The first stage of qualification for debt relief through the HIPC Initiative is the decision point. At this point, the country must have a current record of satisfactory performance in IDA and IMF supported programmes, a Poverty Reduction Strategy in place and debt burden indicators that are above thresholds set by the HIPC Initiative. Creditors, including the World Bank and the IMF begin to provide debt relief at the decision point of relief, however many of the creditors maintain the right to revoke relief thus far in the process. The provision of the debt relief, as well as further relief depends on implementing policies within the relieved country in order to ensure that money that would have otherwise been spent on debt payments is then redirected to poverty alleviation efforts. 

Debt relief then becomes irreversible at the completion point. The country agrees on measurable objectives that will trigger entry to the completion point, some of which will relate to progress in social sectors such as education and healthcare and others which relate to improving governance or fighting corruption. This is done to ensure that the assistance of debt relief will be beneficial. Once a country has successfully passed the completion point, it will graduate from the Initiative.

As of April 2013, 35 of the 39 countries eligible for the HIPC Initiative had reached the completion point. If all 39 eligible countries reach completion point the total debt relief provided by the World Bank and participating creditors is estimated to be US$38.9 billion and $112.8 billion respectively.