Introduction:

Less developed countries (LDCs) in various parts of the world rely on foreign aids, grants, and loans to finance their required services. Over time, many of these countries have accumulated debt that is unsustainable. Debt relief is a tool that provides further assistance to these countries in order to facilitate their economic development. Countries with an unsustainable amount of debt are called Highly Indebted Poor Countries (HIPCs) (The World Bank, 2018; (Dessy & Vencatachellum, 2007; Easterly, 2002).  This paper mainly discusses debt relief programs and their impacts on the economic development of the recipient countries. Since most of the countries receiving debt relief are located in Africa, this paper analyzes the impact of debt relief in Africa as a region, especially sub-Saharan African Countries.

It starts with providing brief history of the debt relief programs through the World Bank and International Monetary Fund (IMF). It explores the relationship between debt relief and foreign aid; whether or not they are applied simultaneously. Research suggests that there is a net positive transfer of resources in HIPCs which means debt relief is an addition to the foreign aids (Powell & Bird, 2010). It further discusses that debt relief has a positive impact on public education expenditures, while there is no correlation between debt relief and public health expenditures (Nannyonjo, 2001). The paper also looks at the impact of debt relief on various types of investments (e.g. public, private, and foreign). It highlights that such initiatives have a positive correlation with public investments (Djimeu, 2017). Some of the constraints that hinder the success of such initiatives are lack of governance structur, institutional reform, corruption, political instability, and capital flights. These are discussed in detail later in the paper.

Background:

Organizations such as the World Bank, International Monetary Fund (IMF) and donor countries such as the G-8 have been long involved in various ways to help low-income countries. These include financial aids, grant programs, concessional loans, debt relief, and debt re-structuring. In 1996, the World Bank, IMF, and other commercial creditors started an initiative to manage the unsustainable debt burdens of the lowest income countries (The World Bank, 2018). This initiative was called the Heavily Indebt