ZAMBIA/MALAWI/MOZAMBIQUE: Debt relief bonus

Zambia, Malawi and Mozambique are among the world's 16 poorest countries that stand to benefit from the decision by the world's seven richest earlier this month to reduce the debt burden of highly indebted poor countries (HIPC). Under the G-7 proposals made in Cologne, in addition to US $25 billion agreed in Birmingham last year, US $45 billion of debt would be written off, including US $25 billion owed by the HIPC. Zambia, whose external debt is estimated at US $6.6 billion, could have its annual repayments reduced by up to 66 percent, researchers at the debt cancellation pressure group Jubilee 2000 told IRIN this week. "However, Zambia will still spend as much on debt service as it spends on health and education combined," the organisation said. Civil society groups note that Zambia's external debt has risen steadily from about US $3.3 million in 1980 to the current figure, and that 84.6 percent of Zambians are assessed as poor. Debt halved for Malawi, Mozambique Malawi and Mozambique could have their debt service repayments reduced by up to 50 percent, Jubilee 2000 said. Mozambique, having gained peace in 1992 after about three decades of war, has just been granted an International Monetary Fund (IMF) loan of about US $78.50 million under the Fund's enhanced structural adjustment facility (ESAF). "This debt repayment reduction could be a big relief for Mozambique, which spends 10 times more on debt repayments than it does on health care," Jubilee 2000 said. Although the country's gross domestic product (GDP) grew by over 10 percent in 1998, unemployment is still high and two-thirds of its 16.5 million people still live below the poverty line, the researchers added. Malawi is also indebted to multilateral funding institutions to the tune of about US $500 million and is estimated to spend almost 17 percent of its export earnings on debt repayments. Ranked 121st out of 137 poorest countries, Malawi's main sources of revenue are tobacco, foreign donations and foreign aid, according to the UNDP's figures for 1997. Criterion for relief The G-7 countries consider debt "unsustainable" under HIPC if the net value of total debt is between 200 and 250 percent or more of exports. "In other words, if a country, repaying foreign debts in hard currency, has a total debt of more than 200 percent of the dollars it earns from exports, then creditors believe the debt to be unaffordable," Jubilee 2000 said. "The real criterion, therefore, for debt relief is that a country has to have debts equal to 200 percent of the value of income derived from exports," the lobby group added. Jubilee 2000 has expressed concern about the manner in which the debt reduction process is being conducted. "There are no discussions about the process," the group said. "The G-7 is agreed that debt relief should be decided only by the creditors with no significant independent or debtor voice." It added: "Details are then worked out entirely by the World Bank, IMF and the Paris Club, which is the cartel of creditors." However, a World Bank source told IRIN that it is still early to speculate on how each country's debt repayments will be restructured. "The HIPC process might start rolling only early next year after the affected countries have submitted their proposals," the source said; "However, it is possible that up to 80 percent of a country's debt can be written off under the HIPC process."