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Zambia: Debt Cancellation Appeal
Zambia: Debt Cancellation Appeal
Date distributed (ymd): 001126
Document reposted by APIC
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Region: Southern Africa
Issue Areas: +economy/development+
Summary Contents:
This posting contains a letter from the Zambian government
calling on the IMF to grant more comprehensive debt cancellation at
its meeting soon to consider the terms to be granted to Zambia
under the Heavily Indebted Poor Countries (HIPC) initiative.
Current options being considered by the IMF will actually raise
rather than lower Zambian debt service payments in the short to
medium term, at a time when the country faces catastrophic
conditions due to the HIV/AIDS pandemic, the influx of refugees
from neighboring countries and other structural obstacles to
confronting poverty.
The posting also contains a short statement on the same issue by
Jubilee 2000 Zambia (http://www.jctr.org.zm/jubilee2000.htm). For
an earlier background report from Jubilee 2000 Zambia see:
http://www.africafocus.org/docs00/zam0003.php>
For a call for letters to the U.S. Treasury on the issue see
Jubilee 2000 USA (http://www.j2000usa.org)
The statement below was taken from a posting last week in the
Breaking-The-Silence egroups discussion:
http://www.egroups.com/group/breaking-the-silence
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REPUBLIC OF ZAMBIA
MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT
MFA/102/16/63
17th October, 2000
Mr. C.D.R. Rustomjee,
Executive Director, IMF
Washington, DC, USA
Dear Mr. Rustomjee,
RE: ZAMBIA'S POSITION ON DEBT SERVICE PAYMENTS AFTER HIPC
INITIATIVE ASSISTANCE
I write to bring a few important considerations to your attention
as the case for Zambia's eligibility for the HIPC Initiative comes
up for discussion.
Zambia welcomes the decision by the IMF Board to discuss the issue
of rising debt service by some countries after they reach their
HIPC decision points, particularly with regard to payments to the
Fund after taking into account expected Fund assistance under the
HIPC Initiative.
Zambia's debt service obligations on principal repayments on loans
to the IMF are projected to rise sharply between 2001 and 2005 upon
expiry of the grace period. The IMF has proposed four options for
smoothing post-HIPC debt service obligations for Zambia (this
smoothing is only tantamount to reducing the 'hump'), namely:-
- Frontloading of interim assistance under the HIPC Initiative by
75 percent - the debt service under this option will still be above
the current debt service and does not therefore address the
objectives of the HIPC Initiatives;
- Rescheduling the SAF Loan to the IMF -- this will only shift the
'hump" of the debt burden to a different period in future.
Additionally, the rescheduled loan may not attract any relief;
- HIPC Initiative Loan- this will not be subject to any further
debt relief in future. Bearing in mind that IMF loans are always
medium term (five years), this is equally likely to create another
hump in future;
- (a) Blending of HIPC Initiative grants and loans - this option
leaves Zambia at current levels of debt service and thus does not
translate into any reduction of debt service for Zambia; and
(b) Reduction of Zambia's debt to export ratio to 11.7 percent in
2001, and 8.5 percent in 2005. This variant will leave the debt
service to revenue ratio at 23 percent in 2001, and since it will
not fall below 15 percent until 2007 it is still insufficient.
Clearly, all the options articulated above, which are outlined in
the Fund's Board document EBS/00/202, are targeted at the noble
objective of reducing Zambia's debt burden through access to the
HIPC Initiative. However, as the abridged notation listed above
indicates, it is ironic that Zambia's debt service will actually
rise substantially in the short to medium term at precisely the
same time that the country cannot afford the amount of debt service
that is being proposed by the Fund staff and management. I
appreciate that other donors have pledged additional assistance to
Zambia during this period. However, there are no guarantees that
such assistance will be forthcoming. On this basis, our view is
that the proposed options contained in the Board Document fall
short of conclusively resolving Zambia's debt burden. Consequently,
we reiterate our appeal that nothing short of outright cancellation
will address our debilitating debt burden, which severely limits
our capacity to address economic growth, widespread poverty, and
the HIV/AIDS pandemic.
In the next few paragraphs, I beg your indulgence to set out the
basis for our position.
Our first observation proceeds from the acknowledgment that option
4 'b' is the best of the proposals from the IMF. However, its
dependence on a dollar level of debt service rather than any
standard of sustainability makes it an ad hoc proposition. We
believe that this is the ideal opportunity for us to set liquidity
based measures of sustainability, such as debt service to exports
or debt service to revenue ratios. These are more objective
measures for fixing debt relief timing requirements from all
creditor groups, and will discount the need for leaving subsequent
solutions to ad hoc assessments that might be politically
influenced.
Our second observation is that if the fundamental objective of the
Enhanced HIPC Initiative is poverty reduction, then the proposals
in their current form, which translate into higher or unchanged
debt service levels, are inconsistent with the spirit of the entire
Initiative, and indeed that of the Poverty Reduction and Growth
Facility (PRGF). The inconsistency is heightened by the fact that
debt service to the Fund, which is the architect and sponsor of the
HIPC Initiative and the PGRF, will rise substantially following the
Decision Point.
Our next observation is that the proposals as they stand fail to
appreciate the peculiar characteristics of Zambia's debt problem.
Unlike other similar affected countries, the ballooning of Zambia's
debt service to the Fund originates from the clearance of arrears
during the Rights Accumulation Programme. In our view, this is an
irrefutable demonstration of our commitment to meeting our
international obligations. More importantly, we believe that it
demonstrates our capacity to diligently pursue Fund-supported
programmes, a process that requires considerable political will and
economic discipline. A related aspect of this consideration is that
since 1992, Zambia has undertaken far reaching economic and
structural reforms. This is not an easy process to go through.
Ironically, however, and as many experts acknowledge, Zambia has
done far much more on the ground than it has ever been given credit
for.
We believe it would be unfair to judge commitment to reform with a
broad brush, or on the basis of a genetic perspective.
Additionally, if the PRGF and PRSP process is to get off to any
start, it will require tangible commitment of resources. It will be
difficult to get the process going, let alone started, if our
resources are to be diverted to higher repayments to creditors,
among whom will be the Fund, the driver of the PRGF/PRSP process.
We must also not forget the urgency and desperation of Zambia's
present economic status. Although the economic and structural
reform process has been comprehensive, life has not been getting
any easier for most Zambians. Presently, the country is far from
attaining its overarching goal of Sustainable Human Development
(SHD) as defined by the World Summit on Social Development in 1995.
In fact, out of the 101 countries for which data on trends in the
Human Development Index (HDI) were available, Zambia was the only
country for which the HDI value in 1998 was lower than in 1975.
In addition to the general decline in the quality of life I have
just outlined, access to social services has become more difficult
to larger sections of Zambia's households. The percentage of the
population afflicted by poverty has grown from 70 in 1996 to 73 in
1998. Poverty, in terms of both the headcount index and the poverty
gap, increased during the nineties. In short, well over four fifths
of Zambia's population lives on less than a dollar a day.
The other element of Zambia's desperate economic and social
situation is the levels of affliction by disease, mainly HIV/AIDS.
In 1999, the estimated DALE for Zambia was 30.3 years. [DALE refers
to healthy life expectancy or disability-adjusted life expectancy.
It is calculated by subtracting years of ill health, weighted
according to severity, from the expected overall life expectancy to
give years of healthy life as developed by the WHO in its World
Healthy Report 2000.] There are only three countries out of 191 WHO
member countries that have a lower value of DALE than Zambia:
Malawi (29.4 years); Niger (29.1 years) and Sierra Leone (25.9
years). According to WHO's Epidemiology and Burden of Disease Team,
healthy life in these countries is dropping to levels that have not
been seen since medieval times!
In comparison with the Sub-Saharan African average of 7.8 percent,
HIV prevalence in Zambia, especially among women attending
antenatal clinics was as high as 24.4 percent in 1997.
All these elements of the state of life in Zambia point to three
inter-locking and viciously interactive forces: deep deprivation
manifested in high levels of poverty and low access to basic social
services; disease, manifested by the reduced life expectancy and
the prevalence of HIV/AIDS infection, and debt, manifested by
increasing levels of debt servicing.
The critical link in this vicious circle is debt, because its
pervasive effect strangles all other efforts to make meaningful
investment in strategies to counteract the deprivation and disease.
Currently, debt-servicing expenditure is the single largest item in
Zambia's budget. In recent years, debt service expenditure far
outstrips expenditures on education, health and other social
sectors. For instance, between 1993 and 1996 expenditure on
education was 2.5 percent of GDP, on health 2 percent and other
social sectors 5.3 percent. However, expenditure on debt service
alone accounted for 10.3 percent of GDP.
Furthermore, the IMF's own debt sustainability analysis revealed
that "Zambia's external debt burden would not be reduced to
sustainable levels before the middle of the next decade. The base
scenario indicated that the ratio of the net present value of debt
to exports, which was estimated at 510 percent at end of 1998,
would remain above 250 percent until 2005 and would not fall below
25% of exports of goods and services until 2004, and it would then
still be equivalent to about 35 percent of government revenue and
about 30 percent of expenditure.
In all, we are therefore saying that Zambia's proposal for debt
relief under the HIPC Initiative is insufficient in terms of-
(a) Reducing the overall debt burden;
(b) Sustaining ability to service the remaining debt;
(c) Releasing more funds fur enhancing the productive sector as a
whole and private sector development in particular; and
(d) Improving internal capacity to generate and sustain proactive
intervention in tackling deprivation, disease and infrastructure
development.
We consider that debt relief would be more significant for Zambia
if the Paris Club creditors and other bilateral creditors offered
a stock-of-debt operation under Cologne 'Terms at Decision Point
rather than in future. Our proposal is therefore that: -
(a) The Paris Club Creditors give Cologne terms and those offering
100 percent write-off on eligible debt at Decision Point; or
(b) Co-operating Partners and Zambia create a Multilateral Debt
Service Fund to assist Zambia with grants in the interim (between
2001 and 2005) to enable Zambia to meet debt service due to
multilateral institutions. This would also assist Government to
reduce its indebtedness to the Bank of Zambia [Currently the
Government has to borrow from the Bank of Zambia (Bridging Loan
Account - US$315 million) whenever debt service to the
multilaterals and other creditors is due. Paris Club debt service
is done from the cumulative escrow account.] This has been
successfully done in a number of HIPCs, such as those for Uganda,
Tanzania and Mozambique.
Our earnest appeal is that the HIPC Initiative should release
resources to support comprehensive development and long-term
economic growth in Zambia. Failure of the HIPC lnitiative to
respond to this challenge in Zambia's case will negate all the work
that has gone into this effort, and raise serious questions about
the credibility of the HIPC Initiative in general.
Formidable as the challenges we have presented in this paper may
appear, we are convinced that they are not insurmountable. We have
come a long way, and Zambia has many factors in its favour; among
them a stable constitutional democracy, a liberalised economy and
considerable natural and mineral resources, all burnished by a
vibrant civil society and a tremendously mobilized grassroots with
commendable resilience and maturity. What we now need more than
ever before is the support of our co-operating partners, including
multilateral institutions to make a frontal attack on the
challenges that face us.
In asking for this support, we are aware that we have established
firm political will and a comprehensive institutional framework for
good governance and fighting corruption at all levels. We therefore
believe that little will be gained by applying the "good governance
criteria" to Zambia's present social and economic crisis. Our
political, social and economic stability, including our regional
peace negotiation are not results of accidents, but are products of
real investment on our part. We therefore, believe that a peace
dividend is a moral as much as it is an economic necessity for
Zambia at this time.
We believe in the vision espoused by the leadership of the Fund and
the Bank, which states:-
"We believe in one world, and poverty is a threat to global
security and welfare. The purpose of our institutions is to help
our member countries develop their human potential and productive
resources, thereby building the foundations for sustainable growth.
Recent history shows that countries that pursue the right policies,
operating in a growing world economy, and with the right support,
can achieve rapid economic growth and reduce poverty. An enhanced
partnership between the Bank and the Fund is essential to the
success of this effort".
I trust the considerations of Zambia's case will take all the
extenuating factors presented here into account.
Yours sincerely,
Dr Katele Kalumba, MP
Statement from Jubilee 2000 - Zambia, November 21, 2000:
"Jubilee 2000 -Zambia echoes Minister Katele Kalumba's call for
outright cancellation and pledges its intensive efforts to put in
place the "debt mechanism" that will assure any freed-up resources
go toward poverty reduction.
Because we believe that this poverty reduction should be our number
one priority -- and not paying back ever-higher levels of debt
servicing -- we have joined in the PRSP process along with a wide
range of very competent and committed members of civil society. It
would indeed be a tragic irony if this PRSP cooperative effort --
an effort strongly pushed by the IMF and highly praised by the
United States -- would now be de-railed by the IMF through its
approval of only minimal relief and by the United States through
its insistence on delaying tactics.
The socioeconomic situation in Zambia is quite perilous and
therefore adequate debt relief is an urgent necessity. Speaking as
responsible members of civil society here, we want to make clear
our own commitment to work for the proper poverty reduction
measures through our close monitoring of future debt relief.
We say to our friends in the United States, give us a chance --
this is the crucial moment!"
Chrispin Mphuka, National Coordinator of Jubilee 2000 - Zambia
November 21, 2000
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC). APIC provides
accessible information and analysis in order to promote U.S.
and international policies toward Africa that advance economic,
political and social justice and the full spectrum of human rights.
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