Change to HIPC Rules Will Help Zambia
A Letter to the Editor
By G. E. Gondwe
Director, African Department
International Monetary Fund
December 8, 2000
Mr. Kwesi Owusu’s December 5 letter (“Zambia’s health emergency leaves IMF directors unmoved”) errs in its characterization of the IMF’s treatment of Zambia. The IMF does recognize Zambia’s enormous development needs, including a terrible AIDS crisis.
That is why the Executive Board on December 1 changed the rules governing IMF assistance under the initiative for Heavily Indebted Poor Countries (HIPC) to permit the Fund to accelerate debt relief for Zambia. This action was taken to address a hump in the country’s total debt service payments resulting from Zambia’s clearance of IMF arrears in 1995. The IMF will effectively reduce Zambia’s debt to the IMF by about two-thirds.
As a result of the IMF Board’s decision, and coupled with decisions by other creditors under the HIPC framework, Zambia’s debt service payments in each of the next three years will be lower than this year. In the absence of HIPC assistance, Zambia’s debt service would have more than doubled next year. Once HIPC assistance is delivered, Zambia will see its total debt reduced by about 80 percent.
But debt relief is not the whole picture. Fresh donor assistance to Zambia is already several times more than debt service. We expect that net transfers to Zambia will rise by about $100 million next year to some 15 percent of GDP; the IMF too will be putting in more than it is taking out.
The combination of accelerated debt relief and increased aid will allow Zambia to raise social spending from $150 million this year to around $250 million in next year’s budget. And that, more than the precise pattern of debt payments, is what matters most.