Press Release: IMF and World Bank Support US$3.90 Billion in Debt Service Relief for Zambia

IMF News, April 8, 2005

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Debt relief under the enhanced HIPC Debt Initiative from all of Zambia's creditors will surpass US$3.9 billion over time (or US$2.5 billion in net present value (NPV) terms as of the end of 1999).
IDA will provide debt service relief under the enhanced HIPC Debt Initiative amounting to US$885.2 million to be delivered from 2001 through 2020.
The IMF will provide debt relief of SDR 468.8 million (equivalent to US$602 million) in NPV terms on payments falling due to the IMF during 2001-08.
Remaining bilateral and multilateral creditors are expected to provide their share of relief required under the enhanced HIPC Initiative.

Debt relief was calculated to bring the NPV of debt-to-export ratio down to the HIPC threshold of 150 percent at the decision point.
Debt-to-export ratios:
- 174 percent in 2003
- 140 percent in 2004
The ratio is projected to decline steadily thereafter.

Zambia reached the completion point under the enhanced HIPC Debt Initiative and is the 17th country to reach its completion point under the enhanced framework.
Since the decision point, real GDP growth averaged 4.6 percent a year.
Fiscal and public finance developments in 2004:
- Domestic borrowing reduced by more than 4 percentage points of GDP from the previous year.
- Wage bill held to 7.8 percent of GDP.
- Revenues strengthened by 0.5 percent of GDP.
- Other expenditures were trimmed.
Inflation remained well above the low single-digit range targeted at the decision point, reflecting an initial lack of fiscal support for the programmed lowering of inflation.

Zambia finalized and adopted a full PRSP covering the period 2002-04; the period covered was extended by one year to coincide with the Transitional National Development Plan (TNDP).
A new PRSP will be developed during 2005 alongside a new National Development Plan for the period 2006-2010.
Specific measures and reforms implemented:
- (i) Integrated HIV/AIDS awareness and prevention programs in the pre-service and in-service programs for at least 10 key ministries.
- (ii) Strengthened basic health services for the poor, including implementation and scaling up of an action plan for malaria.
- (iii) Improved availability of and access to education by increasing the starting compensation of teachers in rural arrears.
- (iv) Improved public expenditure management systems by implementing a Medium-Term Expenditure Framework (MTEF).

Purpose: create a framework for all creditors, including multilateral creditors, to provide debt relief to the world's poorest and most heavily indebted countries.
Three key enhancements in 1999:
- Deeper and Broader Relief. External debt thresholds were lowered from the original framework, making more countries eligible and increasing relief for some.
- Faster Relief. Some creditors began to provide interim debt relief immediately at the "decision point," and the new framework permitted countries to reach the "completion point" faster.
- Stronger Link Between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed through a broad consultative process.
To date, 27 countries have reached their "decision points" and are receiving debt relief from all sources that will amount to more than $54 billion over time, and an average NPV stock-of-debt reduction of nearly two-thirds.

Completion point: when creditors commit irrevocably to debt relief.
Decision point: precedes the completion point; debt relief is committed and begins on an interim basis.
Net Present Value (NPV) of debt: the discounted sum of all future debt-service obligations (interest and principal); reflects the degree of concessionality of a country's debt stock.

Source: Press Release: IMF and World Bank Support US$3.90 Billion in Debt Service Relief for Zambia (April 8, 2005).