Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth

In 1996, the IMF and the World Bank introduced the Heavily Indebted Poor CountriesInitiative—a comprehensive debt relief program aimed at reducing the external debtburden of eligible countries to sustainable levels, provided they carry out strong programsof macroeconomic adjustment and structural reforms designed to promote growth andreduce poverty. Now that the HIPC Initiative is nearly completed, this paper investigateswhether the initiative managed to spur growth, either directly or indirectly throughinvestment. In contrast to earlier studies, we conclude that there is some evidence ofpositive effects of the HIPC Initiative on growth. Such evidence suggests that the HIPCInitiative and MDRI have helped HIPC-eligible countries to reach higher growth, but itremains unclear whether this is through higher investment or another channel. Also, theanalysis illustrates that it is hard to disentangle pure debt-relief effects from otherconcurrent factors.
Publication date: December 2014
ISBN: 9781498369671
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Economics- Macroeconomics , Economics / General , International - Economics , HIPC Initiative , Debt relief , Growth , Investment

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