Development and Social Issues in Africa

Sunday, November 18, 2007

Reparations of debt in Zambia

By Brenda Zulu
Reparations of debt in Zambia have not improved the lives of Zambians as many still have problems in accessing basic services.

Services such as health, education, clean water and shelter are still a problem of many Zambians as before repapration of debt it was thought to have been a problem because of the strain put on the government by debt servicing. Poverty is also an issue with women being the most affected as many of them are unemployed.

Millennium Development Goal (MDG) number eight talks about to develop global partnership for development. One of the targets is to deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long run.
Debt
The 2007 MDG Civil Society Zambia report explains that in 2002 to 2004, the debt service ratio had increased but remained constant in Zambia. Things changed when Zambia attained the Highly Indebted Poor Country (HIPC) completion point in 2005.

Zambia had its US$7.2 billion external debt slashed to about $500 million, as a reward for sticking with economic reforms under the HIPC initiative by the International Monetary Fund (IMF) and World Bank.

However, recently the Government announced that the country’s external debt stood at $643 million since the HIPC completion point in April 2005 and that the Government has contracted eight loans totaling US$110.21 million.

The Government stated that negotiations for these project loans had started before the attainment of the completion point. This includes debts contracted earlier, but which were not part of the debt relief as they were outside the cut-off dates of December 2003 and December 2004.

It should be noted that Civil Society Organisations (CSOs) have been against the government taking non-concessional loans that carry normal interest rates and conditions. CSOs prefer concessional borrowing which offers poor countries more generous terms.

“This free-riding borrowing is very unhealthy, where a country begins to borrow just after receiving debt relief. Government is risking the country’s ability to have a sustainable debt, and we stand a high probability of falling back into unsustainable debt, especially if the contracted loans are from non-concessional sources. It is a threat to Zambia’s future debt solution. Years of high levels of debt servicing meant Zambia could afford minimal social expenditure, but with debt relief the government promised investment in priority areas like education and health as part of a poverty alleviation plan,” said Muyatwa Sitali of the Jesuit Centre for Theological Reflections
(JCTR).

Meanwhile, the government stated that it would continue to borrow.

We shall borrow “for right reasons, to promote development… we don’t qualify for low-interest loans from the International Development Agency (the World Bank’s lending arm), as we are no longer regarded as highly indebted poor country, therefore we have to borrow, but we shall only be contracting concessional loans, as opposed to non-concessional loans,” stated Finance Minister Ng’ande Magande.

Although 15 percent of the 2007 national budget has been allocated to education, and 10 percent to health, critics said little would be invested because much of the budget was donor driven.

Most of the money from China was being spent on developing infrastructure like road networks and providing power in rural areas.

“Social funding was still minimal because more priority and resources are allocated to maintaining non-social issues like State House and supporting international trips than promoting social protect, and money continues to be misapplied. Even if there is allocation of funds or savings from debt relief, very little trickles down to the poor people. The whole country suffers when funds are misapplied because we still have to pay, even if there is nothing to show for what the loan was used, at expense of improving hospitals, education and our roads,” said Saviour Mwambwa, from the Civil Society for Poverty Reduction (CSPR).

The Auditor General’s reports are famously known to contain numerous reports of misuse, miss-allocation and theft of public funds. A recent report by Auditor-General said misapplication of public funds was rampant in Zambia, and about $1 million in HIPC funds was unaccounted for by the Ministry of Community Development in 2005 alone.

Where is Zambia coming from?
It is important to put the scenario for poverty reduction in proper perspective.
In the case of Zambia, the interim Poverty Reduction Strategy Paper (PRSP) was submitted to the Bretton Woods institutions in July 2000 and the full PRSP was submitted in March 2002, approved and launched in June 2002 to cover the period 2002 to 2004. On the part of the Zambian government, the goal of reaching the completion point by December 2004 to achieve debt relief was the most important activity.
The completion point was however reached only in April 2005, extending the anxiety of debt relief and therefore becoming the dominant development discourse in Zambia between 2002 and 2005. Zambian CSOs set up Civil Society for Poverty Reduction, an NGO specifically meant to allow Zambian CSOs participate in the formulation, implementation and monitoring of poverty reduction strategies.
The significance of the HIPC process is underscored by Zambia’s own reality: The United Nations Development Program (UNDP) report states that at the time of independence in 1964, Zambia was a middle income country with a per capita income of US$ 1,500. Since then it has experienced one of the most dramatic declines into the category of the Least Developed Countries (LDCs) with a per capita income of US$ 380 (2003) as compared to Canada’s US$ 23,930 (2003).
Zambia ranks 177 out of the 190 countries covered by the United Nations Human Development Indicators. 73% of the population lives below the poverty datum line and it is estimated that 20% of the adult population is living with HIV/AIDS virus. Zambia declined into a heavily indebted country with a debt stock of US$ 7.2 billion and an estimated scheduled debt service repayment of US$ 600 million; well beyond its export means and therefore requiring significant debt relief which earlier debt relief mechanisms had been unable to address.
Being a severely indebted low income country with a per capita income of US$ 350 and a per capita debt of US$ 220 in 1999 Zambia had no choice but go through the HIPC process in order to secure the necessary debt relief. At decision point in late 2000, Zambia looked forward to a debt stock reduction of US$ 3.8 billion from a debt stock of US$ 7.2 billion and a reduction in debt service from roughly US$ 600 million to US$ 165 million at completion point. With much struggle, which included policy slippages, Zambia finally reached the HIPC Completion Point in April 2005 securing bilateral debt relief promised at the time of the decision point.
The Gleneagles G8 Summit of June 2005 brought further hope as the IMF announced in December 2005 that Zambia would be granted debt relief through the Multilateral Debt Relief Initiative (MDRI) reducing the overall Zambian Debt Stock to US$ 500 million and therefore an overall annual savings of US$ 500 million. The importance of the PRSP in relation to debt relief was realized by the Zambian government. It maintained the required fiscal discipline especially during 2004.

In terms of content, the Zambian PRSP, covering the period 2000 to 2004 drew up programme of action to redress the evident poverty which had deepened to cover 73% of the population by 1998 as noted above. The main purpose of the PRSP was to promote sustainable economic growth and to improve social services and infrastructure. The PRSP identified HIV/AIDS, Gender and the environment as crosscutting issues and good governance and improved public sector management as providing an enabling environment for implementation of the PRSP. There were clear intervention strategies in various sectors for achievement of PRSP objective of poverty reduction.

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