Debt Reduction has Benefited Tanzania, a letter to the editor
August 18, 2000
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By G. E. Gondwe
Director, African Department, IMF
August 18, 2000
Reproduced with permission of the Financial Times
Ms. Barrett of Jubilee 2000 is mistaken in her claim (Aug. 11 letter) that hardly any debts of poor countries are being cancelled. Nine countries have received debt reduction under the enhanced initiative for the heavily indebted poor countries (HIPCs) so far this year, and we are working hard so that as many more countries as possible receive debt relief by the end of the year. The IMF strongly supports debt relief as part of an overall package that ensures that the money is put to effective use to achieve our shared goal of poverty reduction.
Ms. Barrett cites the case of Tanzania, but her data are incorrect and misleading. She claims that Tanzania's debt service payments under the HIPC Initiative have been reduced by only 7 percent, but we estimate the reduction to be five times that amount-that is, over one third- every year for the next 20 years. In addition, Ms. Barrett leaves out the aid received by Tanzania, the amount of which passing through the budget is enough to pay for the country's actual debt service three times over.
As for Ms. Barrett's claim that Tanzania is still paying twice as much in debt service as on health, that is only true if one counts only central government spending, ignoring spending by local government. Total government spending on health and education combined, a more customary comparison, in the current fiscal year is projected to be twice the size of external debt service paid. All in all, Tanzania has benefited greatly from debt reduction and aid, enabling it to increase priority expenditures on poverty reduction by 44 percent in this year's budget.