   |
|
afrol.com, 3 September - One of the poorest countries in Africa is about to undergo a process of debt reduction with a difference. It will be paying more in debt servicing after creditors provide debt relief than it is at present, with devastating consequences for poverty. The country in question is Zambia. But the failure of the Heavily Indebted Countries (HIPC) Initiative to provide levels of debt relief consistent with the human development needs of poor countries raises far wider questions. The Zambia case reinforces evidence from other countries pointing to the need for an urgent review of the debt sustainability targets set by creditors. In headline figure terms, Zambia will make large budgetary savings if the Boards of the IMF and the World Bank accept staff recommendations to provide the country with HIPC Initiative debt relief. Debt servicing in 2001-02 will fall to less than half of the level that will be required under existing debt relief arrangements, with savings amounting to over $200m a year. But headline figures on debt relief are more misleading than usual in the case of Zambia. The debt sustainability analysis carried out by IMF/World Bank staff shows that: Actual debt service payments will increase sharply, from $136m in 1999 to $170m in 2000 before peaking at $235m in 2002. Debt repayments will increase from 24 per cent of government revenue today to 35 per cent in 2001-02 The main cause of the sharp hike in debt service payments over the next few years is an increase in repayments of principal on loans contracted from the IMF. Payments to multilateral creditors will rise from $92m in 2000 to over $170m for 2001 and 2002. Over 80 per cent of these payments will be directed towards the IMF. Under this scenario, debt servicing will continue to dwarf government spending on health, education and other basic services. In 1998, debt servicing represented 1.25 times the combined budgets for primary education and basic health. By 2002, debt repayments will represent more than double projected spending in these priority social areas. The increase in debt servicing comes at a time when health and education budgets are falling in real terms, despite government efforts to improve equity in public spending. The human development costs of this diversion of government revenue are enormous. More than eight out of ten households in rural areas live in extreme poverty. Child death rates are increasing. Under-five malnutrition rates have increased by 25 per cent during the past decade. The Zambian government faces enormous challenges if it is to respond effectively to the poverty of its citizens. Over one quarter of the country's schools need urgent rehabilitation, and there are chronic shortages of textbooks. One-in-three primary school age children in rural areas are out of school. The protracted crisis in primary school education has started to reverse progress towards improved adult literacy. Efforts to reduce poverty are being hampered by an HIV/AIDS crisis that is among the deepest in Africa. Since 1990, average life expectancy has fallen from 51 years to 44 years. About one-in-five of the adult population are infected, and 13 per cent of children under the age of 14 are orphans - one of the highest rates in the world. More teachers are dying each year of HIV/AIDS than are coming out of the country's teacher training colleges. The incidence of tuberculosis is increasing, undermining livelihoods and placing new strains on the health system. Increased public investment is desperately needed in both education and health. Inadequate government spending stretching back over many years has left the country's social infrastructure in a dilapidated state. It has also left households to pick up the financing bill. It costs poor households over one-fifth of their income to send a single child to school. The same households are often unable to respond to sickness episodes because they are unable to afford the price of drugs. For illnesses such as malaria, which accounts for almost one third of hospital admissions, the consequences can be fatal. Despite its poor track record, Zambia is starting to move in the right direction on poverty reduction. The education sector strategy envisages an increase in the proportion of the budget allocated to primary education from around one half at present to 60 per cent by 2001. Ambitious strategies have been developed to improve education quality, especially in rural areas. Failure to reduce the burden of debt will undermine the potential benefits of improved equity in public spending. Oxfam is calling on the Boards of the IMF and the World Bank to provide Zambia with more favourable treatment. The development agency has called for a 10 per cent ceiling to set on the proportion of government revenue spent on debt servicing. As an immediate priority, creditors should front-load debt relief to reduce the burden on government during 2000-02, when repayments peak as loans borrowed from the IMF fall due. The IMF should be required to provide 100 per cent of the debt relief for its loans in the first two years, instead of stretching it over five years. In return for more favourable treatment the Zambian government should develop, with immediate effect, a coherent strategy for channelling savings on debt relief into priority social sector investments, while at the same time improving the equity of public spending through a stronger focus on services used by the poor. The Poverty Action Fund created by the government of Uganda to finance from debt relief savings increased spending on schools and public health, provides a model. Zambia's experience highlights a deeper problem in approaches to debt sustainability. The HIPC Initiative is ultimately geared towards a narrow financial understanding of debt sustainability. It focuses on what governments are able to pay to creditors through the national budget, rather than on what they can afford to pay in the light of pressing human development needs. Many countries are coming out of HIPC spending far more on debt than on primary education - a key investment for poverty reduction. Oxfam believes that is unacceptable for countries to emerge from the HIPC Initiative debt relief process spending more on debt servicing than they are on primary education and basic health. The ultimate yardstick for measuring debt sustainability must be human need, rather than abstract financial indicators during creditor horse-trading. More information on debt relief can be obtained on Oxfam's
website.
|
