By Chilufya Sampa
There have been many views that have been tossed around on whether Zambia’s debt burden will ever come to an end.
The pessimists insist that the initiatives of the donor community to bring debts to manageable or sustainable levels will not work out because the country is still borrowing money to pay its debt service obligations. Then it looks like a vicious cycle and they condemn the initiatives to the trash.
The latest initiative, Enhanced Highly Indebted Poor Countries (HIPC) initiative has not been spared of criticism and many fail to see the debt relief that the HIPC provides.
But the optimists have a different view of the whole process and see the HIPC as a capacity building initiative in debt management that will gradually pull Zambia out of the problem it now faces.
Bank of Zambia Senior Economist Alice Konga states that the process is not really about how much debt stock a country has but how the debt is managed.
Director of Economics at the Bank of Zambia Dr. Denny Kalyalya concurs with Ms. Konga but stress an different point in that the debt stock is not important but what you do when you get relief.
The emphasis really about the initiatives to reduce debt seem different from what a common man in Zambia perceives the initiative is meant to do. And the difference is such that what a Zambian expects from the initiative is cancellation of debt (if not out right cancellation) which will release funds from debt service to social sectors. In fact most people believe that after the cancellation of debts Zambia will not need to borrow again.
But the HIPC initiative has a different objective of building capacity in the country to manage debt (this way Zambia will not repeat the same mistakes of the second republic) and at the same time offer relief so that funds can be channeled to the social sector. The expectation of the HIPC initiative is that not all debts will be canceled, but Zambia will be free to borrow as long as they manage their debt levels which can be sustained by the economy.
Journalists, like most Zambians are skeptical about HIPC and their fears of its failure were reinforced when the Ms. Konga brought to light that HIPC is only addressing debt accrued before cut of point, which for Zambia is 1983. This was at the Bank of Zambia media seminar.
Ms. Konga, when asked what the debt stock will be after the completion point, could not answer because that required compiling the loans that the country has been getting since 1983.
In other words even after the completion point, if Zambia fulfills the conditions set by the multilateral and bilateral donors, when we expect the debt stock to reduce by US$3.8 billion, the total debt stock shall not automatically drop to US$2.7 billion from the current US$6.5 billion.
What may occur is that debt may reduce, increase or remain static because Zambia is currently borrowing to service its debt.
The question that one may ask with the above scenario in mind is what is different about HIPC.
A major difference is that fact that for the first time multilateral donors are canceling debt together with bilateral donors. Previous initiatives on debt relief left the World Bank (WB) and the International Monetary Fund (IMF) out of the debt cancellation equation. These debt initiatives failed.
A country like Zambia, which has more multilateral debt than bilateral debt, could not benefit much from the previous initiatives because the bulk of the debt remained untouched.
When the World Bank and the IMF realised that the debt crisis still loomed they launched the HIPC in 1996 as the first comprehensive effort to eliminate debt in the World’s poorest, most highly indebted countries. Zambia and 40 other countries were the primary target beneficiaries.
Another difference is that the HIPC clearly links the debt relief funds with the social sector spending especially after poor countries have been hit with HIV/AIDS pandemic, and widespread poverty. A country that qualifies for HIPC should come up with a Poverty Reduction Strategy Paper (PRSP) in which the country’s stakeholders (citizens) will prioritise which sectors need funding.
Francis Chipimo acting assistant director macro economic analysis at the Bank of Zambia states that in Zambia the IMF and the World Bank launched the PRSP in September 1999. The PRSP for Zambia has three themes and they are economic, social and cross-cutting issues. These themes address macro-economic stability, economic growth, health, education, governance, gender, HIV/AIDS and water and sanitation.
Since Zambia qualified to the HIPC it has already saved a total of US$64 million which has been disbursed by the Ministry of Finance and Economic Development to various PRSP identified sectors.
The debt relief that Zambia is getting now will be spread over a period of time starting 2004 thereby giving the country extra funds to fund its PRSP programme.
Furthermore the debt that the country is acquiring is on concessional terms with grace periods of 5 to 10 years.
Dr. Kalyalya said that the World Bank loans have interest rates of about 0.75 percent with a 10 years grace period. They are meant to be paid back in 40 years. The IMF loans have an interest charge of 0.7 percent with a 5 year grace period.
Therefore even though the debt stock may not reduce significantly, it is clear that Zambia will have low interest loans to pay back in future. And depending on how the country utilises the resources it is receiving today from the debt relief the debt stock that Zambia will have will be manageable.
With effect use of the resources and eminent economic growth, Zambia will be able to handle much more debt than the current debt stock. That is because with the capacity in-built in our debt managers the type of debt that the country will contract to will be concessional and well thought out.
HIPC is realist because it prepares a country to debt manage after cancellation, knowing full well that no country in the world has no debt. The only difference is that some know how to manage their debts while others do not. HIPC teaches us how to manage our debt. So our debt will always be there only that it will not be a burden or unsustainable and that is what HIPC is meant to achieve.