HIPCs' Debt Review of the Issues

A group of low-income countries (the HIPCs), most of which are in Sub-Saharan Africa, has continued to experience external debt problems. Because the economic characteristics and the external imbalances of the HIPCs are very different from those of middleincome countries, the approach to analysing debt problems and debt reduction initiatives that was developed during the debt crisis of the 1980s needs to be modified and complemented in many important ways. This paper tries to fill this gap by revisiting the methodological issues underlying the analysis of debt sustainability, as well as the theory and empirical evidence of the effects of large debts on economic performance. It finds that (further) debt reduction for the HIPCs may only have positive effects on economic performance if it is seen as endorsing strong and effective programmes of economic stabilisation and reform. This judgment will have to be made on a case-by-case basis. The paper concludes with a number of principles which should guide any practical mechanisms for debt relief.