LOS ANGELES, California — On June 28, 2021, the World Bank Executive Board made its decision to move forward with the International Monetary Fund (IMF) to relieve a significant portion of the Sudanese national debt. This decision is in compliance with the economic recovery goals outlined in the Heavily Indebted Poor Countries (HIPC) Initiative. This initiative helps countries relieve their debt with three-step plans that include funding from the initiative and its partners. Debt relief in Sudan currently adds up to about $50 billion. The funds needed to help Sudan were collected in a multi-step process. Further, additional aid in the form of new development loans is on track to provide the breathing room necessary to increase focus on poverty reduction in Sudan.
This joint program of the World Bank and IMF comes from larger international campaigns aiming to improve Sudan. While international financial institutions have the most direct role in managing Sudan’s debt, this relief is the product of fundraising from the likes of the United States Treasury, which is providing $120 million to the HIPC Initiative to help drive its implementation.
What is the HIPC Initiative?
Debt relief in Sudan is the product of a close relationship between the World Bank and IMF In 1996. Both institutions came to the agreement that a disproportionately high level of debt for a developing economy is liable to demand unsustainable payments. Such payments would hinder economic growth by tying up resources that could go toward improving the economy. So, the organizations committed to the HIPC Initiative to help alleviate the debts of developing countries.
Since commencing this initiative, 36 countries have successfully gone from the initial “Decision Point” to their “Completion Point.” This comes after three-year plans of gradually increasing relief and policy assistance. Since Sudan’s debt comprises 163% of its Gross Domestic Product (GDP), it stands to gain a lot from participating in the initiative.
Funding for the HIPC Initiative
Sources of funding for the HIPC Initiative come from a variety of sources. However, the initiative’s long-term method reflects its complex structure.
More than half of funds for debt relief in Sudan come from sources that fall under an umbrella term that the IMF calls “the enhanced HIPS Initiative.” This array of voluntary payments from IMF member states and private creditors serves as a supplement to the HIPC Initiative by scaffolding each three-year plan to alleviate debt with additional payments. Further, alleviating severe debt to a degree that allows sufficient room for development can require additional aid on a case-by-case basis. To solve this issue, the Multilateral Debt Relief Initiative (MDRI) steps in. The MDRI is a component of the HIPC Initiative that adds the African Development Bank as a third member of the World Bank and IMF partnership. If a country like Sudan qualifies for the MDRI, these three institutions provide 100 percent debt forgiveness on their past loans.
By the time Sudan reaches its Completion Point in the program, IMF projections indicate that its remaining debt will only amount to 14 percent of GDP. Further debt relief from the IMF is under consideration as a possible means to accelerate Sudan’s development after a successful three years of the HIPC Initiative’s direction.
Conditions Of Success
Qualification for the HIPC is not only a matter of need. For debt relief in Sudan to take effect, it must demonstrate many commitments. Primarily, it must commit to the poverty reduction that such aid is to go toward. A key indicator of compliance with the initiative is economic liberalization.
Dabang, an independent news organization in Sudan, observes the balancing act the Sudanese government must follow in its economic restructuring. In moving forward with the anticipation of international aid to smooth the process, measures such as removing price subsidies are causing social upheaval over the rising cost of basic goods.
Sudan’s Minister of Finance and Economic Planning, Dr. Jibril Ibrahim, nonetheless sees this period of transition under the HIPC Initiative as a necessary step to financial sustainability. This is not least on account of the government’s ability to redirect its commodity subsidies to long-term solutions for improving quality of life. These long-term solutions include healthcare expansion and increasing access to education.
A joint statement on June 30, 2021, by the European Union’s High Representative Josep Borrell and Commissioner for International Partnerships Jutta Urpilainen expresses support of Sudan’s economic restructuring. They take it as a sign of its impending growth. The United States likewise stands by the results of debt relief in Sudan after its foreign aid investment. “The U.S. is pleased to join other Paris Club members in providing both immediate and future debt relief in accordance with the provisions of the HIPC Initiative and will continue to support Sudan as it implements additional economic reforms needed to complete the HIPC process,” reads a statement by the United States Treasury.
A track record of several Completion Points lends weight to this confidence. Sudan’s economy is improving dramatically after these debt relief efforts. As such, Sudan currently serves as a focal point of solidarity within the global economy.
– Samuel Katz