ZAMBIA DEBT MECHANISM

 INTRODUCTION

Zambia’s total external debt today stands at approximately US$ 6.5. billion, of which 48% is owed multilateral creditors such as the IMF, 43% is owed to bilateral creditors, and the rest is parastatal and private obligation.  Over the past decade, Zambia has been paying debt service of approximately US$ 200 million annually.  This figure is substantially higher than total social sector spending. 

Analysis of the external debt reveals that the debt service ratio is 33.3%; debt to export ratio is 741%; debt to GDP ratio is 205%. According to IMF and World Bank criteria, these ratios indicate that Zambia's external debt is unsustainable and Zambia is classified in the HIPC category. Hence, the country can only resume reasonable development if its debt is cancelled.

 It now appears that Zambia will soon be receiving some significant debt relief, both from multi-lateral and bi-lateral creditors.  But the most serious question being raised both by lender institutions and nations and by citizens in Zambia is whether the new resources to be made available will go toward effective poverty eradication programmes in the country. Will the poor really benefit from debt relief?

 Significant new decisions relating to debt relief for countries in the HIPC category have been made in Cologne in June and in Washington DC in September.  These decisions mean that the most recent expectations, indeed, requirements, of the international lenders are that (1) debt relief should go toward poverty eradication programmes, and (2) civil society should be involved in the design and implementation of these programmes.  Therefore Zambia must move quickly and clearly in the direction of an effective mechanism for management of debt relief. 

 With this in mind, the following proposal is made to establish a Zambia Debt Mechanism with two components:

 I.                     Debt Fund Managing Committee

II.                Debt Relief Social Fund

 This proposal is now being circulated in draft form by the CCJP/JCTR Debt Project (which coordinates the Jubilee 2000-Zambia campaign).  Reactions and suggestions will be welcomed, in an effort to improve on a proposal which can effectively be put into action so that debt relief for Zambia will soon mean realistic steps toward poverty eradication.

1.0  OBJECTIVES

The overall objectives of the Zambia Debt Mechanism is to ensure that:

• All resources freed from debt service will be channeled to poverty eradication programmes through a newly established Debt Relief Social Fund.

• The process of allocating these resources will be as transparent and accountable as possible, conducted by a newly established body, the Debt Fund Managing Committee. 

·        All future loan negotiations by government will be arrived at after full  consultations with the Debt Fund Managing Committee.

·        The Debt Fund Managing Committee will have legal powers to block loans that do not contribute to the economic well-being of the country, in order to safeguard the country from future debt crises.

·        The current government spending in the social sectors will continue, while spending through the Debt Relief Social Fund will be seen as complementary funding to the sectors.

 

1.0           THE DEBT FUND MANAGING COMMITTEE (DFMC)

 The Debt Fund Managing Committee will administer and manage the Debt Relief Social Fund.  The decisions of the committee will be based on majority vote.

 

1.1 COMPOSITION

The DFMC will be a tripartite steering committee composed of approximately eighteen members.  It will be constituted not only by government officials but also by wider civil society representatives.  Specific times for membership service on the committee will be clearly set down.  The Secretary of Treasury in MOFED will chair the Committee????

A.  Government Ministries

 The following government ministries will nominate members to the Committee:

1.      Ministry of Health

2.      Ministry of Education

3.      Ministry of Community Development and Social Services

4.      Ministry of Finance and Economic Development.

5.      Ministry of Agriculture Food & Fisheries

B.  Parliament

Four members of Parliament will be named by the Speaker of the House, and will be chosen from a cross section of the parties and will include at least one member of a key parliamentary committee charged with debt oversight.

C.  Civil Society

Nine representatives will be chosen from different civil society organisations that meet the following three conditions: (1) involved in poverty reduction and human development; (2) Working with people on the grassroots; (3) Involved in rural activities.  Choice of these representatives will be made by democratic means from among the NGO community.

In addition, this tripartite committee will meet regularly with representatives from key United Nations organisations (such as UNDP, UNICEF, ILO, FAO, UNAIDS, World Bank, IMF, etc.), and with principal bilateral donor agencies.  The purpose of these regular meetings will be to insure transparency and to promote cooperation in the choice and support of poverty reduction programmes.

1.2 OBJECTIVE OF THE Committee

The Debt Fund Managing Committee will ensure that funds realised from debt relief will be directly, openly and accountably spent on poverty eradication programs.  This will assure that there is wide participation in the choice of the programmes and clear transparency in their implementation. 

1.3 TERMS of reference

The Debt Fund Managing Committee will:

·        Be the only authority to approve funding from the Debt Relief Social Fund. This will involve monthly meetings to review progress on the DRSF expenditures and to approve any of the expenditures to be made from the Fund.  These meetings will be open to the public and media will be encouraged to cover them. 

 ·        Come up with a "Positive List" of government expenditures.  The List will comprise expenditure items that have a direct impact on improving the living standards of the poor.  The committee will check every expenditure item proposed for the social fund against the list before the formal approval.

·        Revise the two lists on a quarterly basis and when deemed appropriate.  Sessions open to the public will be held to facilitate this review.

·        Prepare a list of monitorable indicators against which the results of the use of the Debt Relief Social Fund will be evaluated. Examples of the indicators to be used include: number of poor persons who have been lifted out of poverty; number of livelihood-sustaining jobs that have been created; number of schools, clinics, low-cost houses, bore holes, pipes, feeder roads,  etc., that have been built; expansion in supplies of educational materials, medicinal drugs, etc.

·        Revise the list of monitorable indicators as deemed necessary.

·        Call upon technical committees from time to time, that will be comprised of experts both from government and from outside government.  These committees can assist in drawing up specific development programmes aimed at poverty eradication. 

·        Approve an overall progress report prepared by the technical committees at the end of every fiscal year.

·        While recognizing that parliament has the full responsibility to approve of new loans by government, the committee would monitor closely the loan reports by parliament in an effort to build a database for new loans.

·        Mandate and approve a full audit report of the DRSF on an annual basis. The report should be available for public scrutiny and will be submitted to Parliament for review and approval.

·        Ensure that administrative cost of the DRSF and the committee will not exceed 10 percent of the money in the Fund account.

·        Establish a base line for determining the percent of government budget allocations to the social sectors that would be supplemented by the social fund expenditure.

 2.0   THE DEBT RELIEF SOCIAL FUND

The Debt Relief Social Fund will be a separate account at the Bank of Zambia (BOZ), and it will not be simply absorbed into the overall government budget.  All savings from reduced debt servicing will be channeled into this Fund. The Fund will be administered and managed solely by the DFMC.

2.1    Objective of the Fund

The overall objectives of the Fund are:

• To act as a participative and publicly accountable mechanism to channel debt relief resources to specific poverty eradication programmes.

•  To increase government's accountability and transparency in the use of resources.

• To safeguard social sector expenditure by assuring that funds over and above regular expenditures are set aside for additional and complementary programmes.

• To mobilise additional resources for poverty eradication from sources other than debt relief (e.g., specific donor grants).

2.2    Operation Modalities of the Fund

 ·        The Fund's resources will be additional over and above the usual budgetary allocations to the social sectors.

·        Resources of the Fund will be released to line ministries and non-governmental  organisations that are undertaking poverty reduction programmes, after these programmes have first of all been approved by the Debt Fund Managing Committee. 

·        The release of resources on a regular basis will be subject to the availability of a comprehensive work plan offered by the line ministry or non-government organisation.

·        The recipient ministry or organisation will be required to prepare quarterly reports on the use of the funds, operational challenges and the general update on their effectiveness in poverty eradication.

·        To enhance transparency, all the Fund's resources will be published and openly discussed at the regular meetings of the DFMC. Representatives of  government, Parliament, civil society, the media and all other interested stakeholders will be encouraged to attend.  All reports will be widely circulated for public consumption.

 3.0 EXPECTATION of the Zambia Debt Mechanism

It is expected that when established the Zambia Debt Mechanism, through its two component parts, will:

 

·        Encourage both bilateral and multilateral creditors to cancel Zambia's debt, as these creditors will be assured that resources freed up through debt relief will clearly go towards bettering the lives of the poor.

·        Ensure public participation, wide public consensus, transparency and accountability on the part of all stakeholders in deciding on the disbursement of debt relief funds.

·        Eliminate or minimise corruption and other ills of society as regards the use of debt money and the decisions regarding debt negotiations.

·        Ensure that Zambia controls its destiny as regards future borrowings and debts.

4.0 IMPLEMENTATION OF ZAMBIA DEBT MECHANISM 

The proposal and design of this Zambia Debt Mechanism will be subjected to wide public debate and its establishment will finally be enacted by Parliament.  Government will be expected to secure start up funds from its own finances and from donors.

19 November 1999
Submitted by:
CCJP/JCTR Debt Project
e-mail: debtjctr@zamnet.zm

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