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Zambia's Financial Position much Improved
A Response to an Article of August 21

By Ernesto Hernández-Catá
Associate Director
African Department, IMF

Financial Times
August 24, 2000

Sir:

There is no basis for the headline on Alan Beattie's report of a recent statement by Oxfam (Aug. 21), that the HIPC debt reduction initiative "worsens" Zambia's financial position. To the contrary, the initiative will reduce Zambia's external debt by 60-65 percent, and debt service payments in 2001 will be cut as a result of the initiative from nearly $600 million to $225 million. After 2001, Zambia's debt service payments are projected to drop sharply further, to reach single digits as a percentage of exports from 2005 on.

It is true that, despite these efforts, debt service payments next year will be higher than this year, because of repayments to the IMF, which have been zero for a number of years. But this, of course, is not a proper basis for an assessment of the impact of HIPC. I would note, however, that the IMF is front-loading its HIPC assistance to Zambia, providing close to 60 percent of all HIPC initiative assistance in 2001-02. It is also looking for additional ways to reduce the burden. And in any event, Zambia will be receiving more money from the IMF than it will be repaying.

We also take strong issue with Oxfam's allegation that the initiative is based on a "narrow financial understanding" of debt sustainability. In fact, Oxfam is taking an unduly narrow view by looking only at debt: grants and new concessional lending-on top of the HIPC initiative-are expected to provide an amount more than double Zambia's debt service in 2001. If used appropriately, these funds can help ensure that the poor are better off.

The IMF joins others in hoping that the international community can do more for Zambia. But ultimately success will hinge on donor willingness to finance the effort. In the meantime, however, there can be no question that Zambia's financial position is being greatly improved.




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