Debt relief

The UK’s Participation in debt relief initiatives

Debt relief provides long term, predictable resources for countries to spend on health, education, infrastructure and other investments to help meet the Millennium Development Goals (MDGs), to halve world poverty by 2015.The UK Government is an active supporter of both the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).

HM Treasury leads the UK’s international policy on debt, including debt relief – both domestic policy and the UK’s international engagement on debt with other official creditors and with International Financial Institutions. HM Treasury also leads the UK delegation to the Paris Club.

The Heavily Indebted Poor Countries (HIPC) Initiative

The HIPC Initiative was launched in 1996 by the International Monetary Fund (IMF) and World Bank, with the aim of ensuring that no poor country faces a debt burden it cannot manage. This involves coordinated action by the international financial community, including international organisations, governments and the private sector. Creditors agree to provide debt relief to countries that complete the HIPC process.

The UK goes further than is required under the terms of the Initiative, cancelling 100 per cent of all bilateral debt owed by eligible HIPCs and providing 'topping up' assistance where a country has suffered an unexpected economic shock that threatens its ability to meet its debt repayments. The UK is also the second largest contributor to the HIPC Trust Fund which helps multilateral institutions meet the costs of debt relief under HIPC.

The UK additionally offers debt relief unilaterally for non-HIPC poor countries under the UK Multilateral Debt Relief Initiative (see below).

The Multilateral Debt Relief Initiative (MDRI)

The Multilateral Debt Relief Initiative (MDRI) was launched in 2005. It entails 100 per cent cancellation of the remaining debts of HIPCs to the concessional lending arms of the World Bank, IMF and African Development Bank when they reach the completion point of the HIPC process. MDRI is expected to deliver around $50 billion of debt relief for 40 countries. We also give debt relief for the poorest non-HIPC countries provided we are convinced they will use this to help poor people. Under the UK MDRI, we pay our share (10%) of qualifying non-HIPCs’ debt service to the World Bank and African Development Bank.

The Debt Relief (Developing Countries) Act 2010

The Debt Relief (Developing Countries) Act 2010 was made permanent on 25 May 2011. The legislation means that creditors can no longer use UK Courts of Law to pursue excessive claims against Highly Indebted Poor Countries on their historic debts, ensuring that the resources of these countries are available to tackle poverty.

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