Belt-tightening finally pays off as debt repayments slashed

Campaigners have cautiously welcomed the World Bank's (WB) approval of a US $3.8 billion debt relief package for Zambia under the programme to help heavily indebted poor countries (HIPC). The World Bank country manager for Zambia, Ohene Nyanin, reportedly made the announcement at a meeting with donors and treasury officials in the capital, Lusaka, on Thursday. Although the International Monetary Fund (IMF) still has to endorse the plan, and will meet on the matter on Friday, it is doubtful that it will disagree with its sister institution. Zambia is expected to save an average of US $20 million to $50 million per year over the next 15 years. Up to 2000, debt-servicing costs had ranged between US $500 million and $600 million annually, but this was slashed to between $170 million and $200 million per year once the country joined the HIPC programme. Now that Zambia has reached the HIPC completion point it will be paying around $150 million per year. In 2004 Zambia's total foreign debt stood at $6.8 billion, having risen from $6.38 billion in 2003. "After all the sacrifices we had to make, the news came as a relief. The government made some very tough decisions to reach the HIPC completion point but, now that we have, we can expect life to become somewhat easier," deputy finance minister Derick Chitala told IRIN. Civic bodies were at loggerheads with President Levy Mwanawasa's administration throughout 2004, accusing it of kow-towing to the aid conditions set by the IMF and WB in a bid to have the country's external debt reduced. Of concern was the impact on social services, like education, of conditionalities linked to HIPC. Chitala pointed out that, as a result of reaching the HIPC completion point, more money would become available to bolster the country's ailing social services sector. "We must admit that the benefits will not be seen immediately. However, in the long term we are likley to see an improvement in our health and education sector, both of which are in need of serious attention. The government's interventions, however, will take place within the broader poverty alleviation strategy," he said. Around three-quarters of Zambia's 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 mortality among under-fives has increased sharply. Jubilee 2000, an anti-debt campaign group, said the debt relief was a "window of opportunity" for Zambia to improve its weakening economy, but warned that "adequate monitoring mechanisms" were needed to oversee how the additional funds were spent. Jack Jones Zulu, an economic policy analyst with Jubilee-Zambia said, "The World Bank's decision means that Zambia has an opportunity to rejuvenate its economy. What is needed now, are clear policies to direct exactly how the funds are used - the average Zambian must see concrete changes in their lives." "It is crucial that the government opens its books to public scrutiny if it is to avoid any further accusation of corruption," he added. Jones Zulu said questions as to whether Zambia could sustain its external debt repayments after the WB relief package would depend on international prices for copper, the country's largest foreign currency earner. "Should copper prices drop dramatically, Zambia could be in for a huge surprise, and probably find itself unable to service its debt - then we would have to rethink the way forward," he commented. The government's belt-tightening measures have already paid off, as donors agreed this week to provide the country with US $160 million to finance poverty reduction programmes over the next two years. Chitala said, "The donors have witnessed our commitment to sorting our finances out and we are now being rewarded. There is obviously more business confidence in Zambia, and we are going to ensure that it remains that way."