The Prospect for Foreign Debt Sustainability in Post-Completion Point Countries: Implications of the HIPC-MDRI Framework

Abstract

The Enhanced HIPC Initiative was launched in 1999 to reduce the Net Present Value (NPV) of foreign debt of the world's poorest countries to a sustainable threshold of 150% of their exports. This article applies a simple growth‐with‐debt model to 16 post‐completion‐point HIPCs to assess whether this goal will be met by 2015. Its somewhat optimistic base‐case projections suggest that participation in the current Enhanced HIPC‐MDRI initiative will only reduce the NPV of their total external debt to 176% of exports by this date. Sensitivity tests which expose these countries to adverse exogenous shocks help draw attention to policies that could ensure that they do not again accumulate unsustainable debt levels.