What is debt relief, and which frameworks are commonly used to forgive external debt in developing countries?

What is debt relief, and which frameworks are commonly used to forgive external debt in developing countries?

• A. Increasing external debt.
• B. Reducing or canceling external debt; frameworks include the Heavily Indebted Poor Countries (HIPC) initiative or Paris Club debt relief.
• C. Imposing new tariffs to raise revenue quickly.
• D. Privatizing state-owned enterprises to reduce liabilities.

Answer: (B)

Debt relief means reducing or cancelling external debt to a country when its debt burden is unsustainable, freeing up resources for development and stabilizing the economy. The frameworks commonly used to forgive external debt in developing countries are the Heavily Indebted Poor Countries initiative, which provides targeted relief to eligible low-income countries that meet reform requirements, and Paris Club debt relief, where major official bilateral creditors coordinate to forgive or restructure debt under agreed terms. Other options don’t fit debt relief: increasing external debt worsens the burden, while imposing tariffs or privatizing state-owned enterprises are different fiscal or structural measures that don’t involve formal debt forgiveness or restructuring.

Debt relief means reducing or cancelling external debt to a country when its debt burden is unsustainable, freeing up resources for development and stabilizing the economy. The frameworks commonly used to forgive external debt in developing countries are the Heavily Indebted Poor Countries initiative, which provides targeted relief to eligible low-income countries that meet reform requirements, and Paris Club debt relief, where major official bilateral creditors coordinate to forgive or restructure debt under agreed terms. Other options don’t fit debt relief: increasing external debt worsens the burden, while imposing tariffs or privatizing state-owned enterprises are different fiscal or structural measures that don’t involve formal debt forgiveness or restructuring.