The HIPC initiative and China’s emergence as a lender: post hoc or propter hoc?

Twenty years after the Heavily Indebted Poor Countries (HIPC) debt relief initiative, debt levels in low-income countries are rising again, renewing sustainability concerns. The prevailing view suggests that China and other emerging lenders exploited the HIPC initiative to expand lending. Using a synthetic control method to generate a counterfactual, we find that, contrary to this narrative, China and other emerging lenders reduced net lending after debt relief; only multilateral creditors increased it. Furthermore, we find no evidence to support the claim that debt relief encourages lending to political allies. Overall, debt relief seems to have had a limited influence on subsequent lending patterns.