H. Zambia: A debt case study
An International Monetary Fund (IMF) and World Bank team visited Zambia in February and declared that the country had reached the completion of its Heavily Indebted Poor Country (HIPC) initiative, which seeks to provide debt relief to poor nations that adhere to IMF conditions. The team declared that they would make a final decision within the next few months as to whether Zambia would qualify for about $3.8 billion of its $6.8 billion debt to be written off.
The IMF and Bank team declared: "IMF and World Bank staff have reviewed progress made in meeting the steps required for reaching the completion point under the HIPC initiative. Information received indicates that all triggers relating to poverty reduction and social sectors have been met.”
Zambia is one of the poorest countries in the world. Poverty rates are up, life expectancy is down, infant mortality has more than doubled since 1990 and malnutrition is common. Debt looms large as one of the reasons why the country has failed to escape the poverty trap. According to figures available from the website of the African Forum for Debt and Development (Afrodad), Zambia spends US$14 per capita on health compared to an average of US$2 500 for high income countries. Spending on debt servicing is 6.4 percent of GNP, more than on health and education combined.
In the essay ‘The Politics of Debt Relief and Poverty Alleviation in Zambia’, Bertha Osei-Hwedie states: “Allocation of the bulk of resources to debt service and government cuts in social expenditure have deprived the majority of the population of access to education, health facilities, clean water and housing, and employment opportunities, making their livelihood hard. Zambia spends 40 percent of new aid money on the repayment of multilateral loans, especially of the IMF and World Bank, instead of on poverty alleviation.” This is despite an HIV/AIDS epidemic, and high infant and maternal mortality.
According to a 2004 World Development Movement report, Zambia turned to the IMF and World Bank for loans in the 1970s after the oil crisis and commodity price collapse. After these external economic shocks in the early 1970s, says the WDM report, Zambia's total external debt rose from US$814 million to US$3,244 million by the end of the decade. The situation then further deteriorated with Zambia's external debt more than doubling to US$6,916 million by the end of the 1980s. “By the late 1990s the debt crisis in countries such as Zambia led to the creation of the much vaunted Heavily Indebted Poor Countries (HIPC) initiative.” By the start of 2003, Zambia had received only 5 per cent of the debt service reduction committed to it under HIPC, says the WDM.
In getting to the latest HIPC completion point where it can be considered for a $3.8 billion debt write-off, Zambia has had a rocky relationship with the IMF and World Bank. In order to qualify for HIPC write-offs she has had to adopt stringent conditions including tight controls on government spending, privatizing public utilities, removing subsidies, deregulating its markets and opening its doors to foreign imports.
Under the HIPC, Zambia has had to adopt a Poverty Reduction Strategy Paper (PRSP). The PRSP process has been compared by Jubilee Zambia with the earlier Structural Adjustment Programmes and criticized for its market-based growth at the expense of social and economic development of the more vulnerable groups within the country. Like SAPs, states Jubilee Zambia, the PRSP process had an over reliance on the trickle down effect; failed to recognise the cost of growth in terms of the reduction in the social capital and set targets that were heavily influenced by external funders and insufficiently influenced by the results of public participation.
After years of SAPs and PRSPs in 2004, says Make Poverty History, Zambia spent $377 million repaying its debt, an amount twice what it spends on education. If the country does indeed receive a $3.8billion write-off it would still have a debt of $3billion, an amount that would still consume 3-4% of its GDP in servicing, or roughly the same amount as that spent on education. Whether this will be enough to free the country from the chains of debt and whether the price paid was worth it remains to be seen.
SOURCES:
http://www.jctr.org.zm/downloads/prpscrtiq.pdf
http://www.makepovertyhistory.org/aim2.html
http://www.mg.co.za/articlepage.aspx?area=/breaking_news/breaking_news_…
http://www.irinnews.org/report.asp?ReportID=45518
http://www.afrodad.org/debt/zambia.htm
http://www.wdm.org.uk/campaigns/cambriefs/debt/zambia/zambia.pdf