C2D: A mechanism to relieve indebted countries

In 2016, AFD allocated EUR 315m under the C2D initiative.
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© Olivier Girard
The Debt Reduction-Development Contract (C2D) is a tool to restructure the debt of certain countries. In practical terms, once a Heavily Indebted Poor Country has signed a C2D with AFD, the country continues to service its debt until repayment. At each payment on the due date, AFD transfers the equivalent amount to the country in the form of a grant. This amount is used to finance poverty reduction programs.

How the C2D came about

Fishing village, Mauritania
Illustration photo © Denis Carrascosa, Flickr (public domain)

How the C2D came about

In 1996, the international community recognized that the external debt situation of a number of very poor countries had become “unsustainable” and had a negative impact on their development prospects. The “Heavily Indebted Poor Countries” (HIPC) initiative was launched in the same year and is coordinated by the Paris Club creditors. It aims to reduce the external debt burden of these countries to a sustainable level. 

When the last stage of the HIPC process – completion point – is achieved, the French State may make an additional bilateral effort in the form of a Debt Reduction-Development Contract (C2D).

How does the C2D work?

A C2D beneficiary country continues to repay the maturities on the uncancelled portion of its debt. However, at each payment on the due date, AFD transfers it the equivalent amount in the form of a grant. This financing is earmarked for poverty reduction programs, which are selected by mutual agreement with the partner country.

AFD implements the C2D on behalf of the French Government and handles its technical supervision for countries in the Priority Solidarity Zone (PSZ). The general policy for the C2Ds granted is defined by the General Directorate of the Treasury and Directorate General of Global Affairs, Culture, Education and International Development.

It involves a long-term debt cancellation: the loan maturities often spread out over about twenty years. They are generally in the form of several successive C2Ds, each concluded for a period of between three and five years.
 

C2D: for which countries?

This procedure for the cancellation of Official Development Assistance (ODA) debts is intended for countries which belong to the category of “Heavily Indebted Poor Countries” (HIPC).  
Countries eligible for C2Ds:

  • Bolivia
  • Burundi
  • Cameroon
  • Congo
  • Côte d'Ivoire
  • Democratic Republic of Congo (DRC)
  • Ghana
  • Guinea
  • Honduras
  • Liberia
  • Madagascar
  • Malawi
  • Mauritania
  • Mozambique
  • Myanmar
  • Nicaragua
  • Rwanda
  • Sierra Leone
  • Somalia
  • Sudan
  • Tanzania
  • Uganda
     
315
million euros allocated by France for C2Ds in 2016
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