Zambia: The hard road to HIPC completion - Yearender

from IRIN
Published on 06 Jan 2005
[This report does not necessarily reflect the views of the United Nations]
JOHANNESBURG, 6 January (IRIN) - Zambia's President Levy Mwanawasa weathered tough criticism in 2004 for his government's apparent kow towing to the aid conditions set by the International Monetary Fund (IMF) and World Bank.

Civic bodies were at loggerheads with Mwanawasa's administration during the year, accusing it of sacrificing too much in a bid to have the country's external debt reduced.

Although the aid-dependent country is now a step closer to the Highly Indebted Poor Countries (HIPC) completion point after implementing a series of austerity measures prescribed by the international financial institutions, critics pointed out that cuts in government spending had seriously hampered Zambia's ability to tackle endemic poverty.

Zambia's key social indicators are among the worst in Africa and three-quarters of its 11 million people live below the poverty line of one dollar a day. According to the UN Children's Fund, life expectancy has dropped dramatically in recent years, while infant mortality among under-fives has increased sharply.

Among the unpopular belt-tightening measures was a six-month freeze of state employee wages, introduced in February. Additionally, about 495,000 workers were expected to shoulder the burden of an income tax hike of up to 40 percent.

In what was seen as the first bite-back against IMF economic conditionalities, workers staged a major strike against the higher taxes and wage cap. The Zambia Congress of Trade Unions claimed at the time that 90 percent of public sector workers had heeded the strike call.

The government was forced to send ministers to the provinces to explain the tax rises, although Mwanawasa had reportedly earlier disagreed publicly with the IMF measures.

In March Mwanawasa said the government was determined to reach the HIPC completion point, noting that debt servicing was "crippling" the country. He said even the financial assistance that the country received from the donor community was immediately paid back to creditors.

Zambia began the HIPC process in 2000. According to the IMF, without HIPC, Zambia's debt servicing obligations would have more than doubled to US $420 million in 2001.


But local and international development agencies have raised their concerns over the impact of the conditionalities linked to HIPC on social services, like education.

Hot on the heels of the growing frustration of thousands of unemployed teachers, Oxfam released a scathing report, in which the development agency claimed that the IMF's harsh conditions had curtailed efforts to improve the quality of school education. Oxfam said that while government initiatives to get more children into school by introducing free basic education were paying off, IMF policies, which severely restricted the recruitment of teachers, threatened to undo many of the gains achieved in recent years.

Zambian schools are experiencing a shortage of about 7,000 teachers, despite having 12,000 trained teachers who cannot be put on the payroll due to a ceiling on expenditure allegedly imposed by the IMF. At its most extreme, the teacher shortage had raised the prospect of a breakdown in the education system, Oxfam warned. According to the National Union of Teachers, some pupils in rural areas did not see a single teacher during 2004.

The IMF hit back, arguing that contrary to the claims, its policies had not prohibited Zambia from hiring new teachers or other priority workers, such as doctors and nurses, and that the wage cap had been agreed between IMF staff and the government in 2003, following a substantial salary raise and the introduction of a new housing allowance for government workers.

In an effort to alleviate the situation the Netherlands stepped in with a US $10 million donation to assist in hiring new teachers.


HIPC is supposed to reduce a country's debt stock to "sustainable" levels of a debt to exports ratio of below 150 percent. Anti-debt activists have argued that the projections used to calculate Zambia's threshold are wrong, and debt servicing would continue to increase for several years to come.

"HIPC relief would considerably reduce Zambia's debt service obligations and thus free resources, which the government could spend more productively elsewhere. However, the proposed amount of relief is not sufficient even according to the IMF and World Bank's parochial definition of sustainability: Zambia's debt to export ratio is projected to remain above 150 percent until at least 2010," said Jubilee 2000, an international anti-debt lobby group.

"The mood among various sectors of society has been one of disappointment. Despite appeals to review the country's involvement in the HIPC initiative, the government has pushed ahead with the prescriptive policies of the IMF and World Bank. After more than 20 years of involvement with both these financial institutions, it should be clear by now that their policies have not benefited Zambia in any way," Zulu told IRIN.

Economic reformers have argued, however, that the fault has been with the implementation of policy by successive Zambian governments.


According to official government figures, Zambia's external debt is pegged at US $6.5 billion, but about US $3.8 billion would be written off once completion point was reached.

Achieving that goal has been far from straightforward for Zambia. After it became a HIPC member in 2000, the country was granted a Poverty Reduction Growth Facility (PRGF), a concessional facility which prolonged the repayment of international debts at low interest rates.

The PRGF expired two years later and the government pushed for another PRGF but it failed to access the facility twice in July and December 2003 because of the budget over-run. The IMF and the World Bank ordered Zambia to reign in spending and to put in place sound macro-economic management system if it were to access another PRGF.

The two international lending institutions put the country on their staff monitored programme which paved the way for them to monitor Zambia's economic performance and its spending pattern before they could grant it another PRGF.

Zambia initially was on course to reach the HIPC completion point by the end of December 2004. But the IMF and the World Bank now say Zambia needs to fulfil a total of 15 benchmarks, with qualification tentatively expected in the first quarter of 2005.


Meanwhile, observers have argued that the implementation of the economic policies prescribed by the IMF and WB, were "unrealistic" and would exacerbate widespread poverty.

One local organisation in 2003 estimated that job losses resulting from the privatisation of Zambia Consolidated Copper Mines meant up to 45 percent of people in Copperbelt province could no longer afford to take their children to the doctor because of user fees.

One of the major concerns was that government spending cuts were affecting the ability of the state to provide resources for tackling the AIDS pandemic. Around 16 percent of Zambians between 15 and 49 years old are estimated to be infected with HIV, and 150,000 children carry the virus.

"The government is well aware of the difficulties experienced by the population but is of utmost importance that we achieve the HIPC completion point. We have already seen the benefits of our fiscal discipline as the economy has stabilised over the past year. Sooner or later, people, including our critics, will realise the advantages of the debt relief," director of planning and economic management in the finance ministry, James Mulungushi, told IRIN.

In response, Muweme Muweme of the Jesuit Centre for Theological Reflection, noted: "While we can understand the importance of attaining the HIPC completion point, we should not lose sight of our present predicament. We are poor and really cannot afford to sacrifice education or healthcare. Any further cuts will surely see the collapse of essential services."

Mwanawasa has proven to be a reluctant partner in implementing certain IMF and WB requirements. Although the government initially agreed to privatise Zambia's state electricity company (ZESCO) and state bank (ZNCB), it backtracked after large-scale public resistance.

Instead, it has moved to commercialise ZESCO and, according to a senior official at the finance ministry, negotiations were underway with the preferred bidder for the sale of 49 percent shares in ZNBC.


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