DEBT RELIEF FOR THE WORLD’S POOREST –
MAKE OR BREAK
Executive Summary
The Heavily Indebted Poor Country (HIPC) debt relief policy is the response of the International Monetary Fund and World Bank to worldwide pressure to ease the burden of unpayable debt owed by the poorest countries. It is a starting point towards securing a millennium Jubilee cancellation of debt – and it is in trouble.
The HIPC initiative is one year old. The political support behind this policy is crucial in determining the success or failure of its promise made when it was launched - to provide a "robust exit" from poor country debt.
All the indications suggest that continuing with the policy as it stands will not resolve the debt problem.
So far, the approach of creditor governments, notably G7 members, is to minimise their costs in funding the initiative. This miserly approach by the world’s richest countries is jeopardising the potential for maximising the benefits for the world’s poorest.
The debt burden is suffocating the life chances of millions of people in highly indebted poor countries. Redirecting the money paid by poor countries for debt servicing could save the lives of at least seven million people a year.
Huge unpaid and unpayable debts are a deterrent to economic investment and an obstacle to the expansion of economic productivity. Ironically, in the poorest countries, the overhang of unpayable debt undermines economic growth and the ability of debtor countries to maintain their debt servicing, still less pay off their debts.
CAFOD is calling for the HIPC initiative to be reformed to shorten its time frame and lower its estimates of what poor countries can afford to pay in debt service – known as debt sustainability - to provide real opportunities for the world’s poorest countries to grow economically and invest in human development.
The initiative’s over-reliance on a few narrow macroeconomic indicators to measure debt sustainability does not reflect the inability of the world’s poorest and most underdeveloped countries both to maintain their debt servicing obligations and at the same time tackle poverty. The HIPC initiative needs to incorporate the standardised UNDP measurements of human development in its Debt Sustainability Analyses .
The world’s richest creditors apply more generous standards of sound macroeconomic performance to themselves than they impose on the world’s poorest countries.
The European Union’s criteria for joining a single currency imply much lower thresholds for what is considered to be levels of sustainable debts than the standards those same countries expect of the world’s poorest debtors whose need for higher spending on social sectors is much greater.
The German government’s Finance Ministry in particular has been one of the most intransigent members of the Boards of Governors of the World Bank and IMF. However, Germany itself was the beneficiary of comparatively generous terms of debt relief after the Second World War. It is shameful that its Finance Ministry now expects much harsher conditions and much less generous terms to be applied to destitute nations.
The delays over the modest amounts of debt relief on offer are morally unacceptable and financially inexcusable. The costs of some measure of debt relief for 20 of the worst affected countries under the HIPC initiative amounts to between just US $5.5 billion and US $7.7 billion – less than a third of the cost of UK’s Eurofighter programme, less than a third of the cost of the Channel Tunnel and less than the cost of a single Stealth bomber.
In global terms this sum is easily affordable. If the richest countries are to have their policy declarations taken seriously, the rhetoric of their ambitions must be matched in the implementation of their policies.
HIPC – DRINKING IN THE LAST CHANCE SALOON ?
Introduction
It is one year since the Boards of the International Monetary Fund and the World Bank launched their flagship policy for debt relief – the Heavily Indebted Poor Country (HIPC) debt policy.
At its launch, the World Bank claimed that the main objective of the HIPC initiative was to "enable poor countries with good policy performance to escape from unsustainable debt and focus all their energies on striving for sustainable development and reducing poverty." The policy claimed to provide a framework for a "robust exit" from the burden of unsustainable debts.
The HIPC initiative initially appeared to offer the poorest countries in the world a package of measures that would maximise the benefits to the poor, but today they are caught up in a system which is dragging out the promise of debt relief to minimise the cost to the richest donor countries.
Out of the 41 heavily indebted poor countries, only 3 are confirmed as being afforded some modest debt relief by the year 2000.
Indeed, the initiative is now stalling and in danger of failing because of the richest donors’ rigid insistence on an equitable sharing of their costs for debt relief and a miserly approach to what they can afford.
In global terms, the financial costs of relief under the HIPC package are insignificant.
It is estimated that the total cost of providing relief for the 20 worst affected countries would amount to between US $5.5 billion and US $7.7 billion – less than a third of the cost of the UK’s Eurofighter programme, less than a third of the cost the Channel Tunnel and less than the cost of one Stealth bomber.
The human costs of the debt overhang are substantial and growing. All but 7 of the 41 heavily indebted poor countries are in Sub-Saharan Africa. This region has the highest proportion of people living in poverty. The UNDP estimates that nearly a third of Africans living in heavily indebted poor countries will die before reaching age 40. By the year 2000, half the people in Sub-Saharan Africa will be in income poverty (defined as subsisting on less than US $1 a day).
The financial liabilities of both creditors and debtors are also deepening. During a time of ever-closer Fund and World Bank involvement with most of the 41 highly indebted poor countries, their total debt stock has actually increased. From US $55 billion in 1980, it rose to US $183 billion in 1990, reaching an estimated total of US $215 billion in 1997.
One year ago, international Non-Governmental Organisations welcomed the HIPC initiative with its promise to be a powerful instrument for combating world poverty. If, in the new millennium, the debt crisis is not to be recycled, this Autumn’s Board meetings of the World Bank and International Monetary Fund, need to speed up the process of cancelling unpayable debts and provide new funds which will give the HIPC process immediate effectiveness.
Without demonstrable commitments by the Paris Club members to accelerate the HIPC process, those bodies will share responsibility for the spread of debt and poverty in the world’s poorest countries and the crushing of life-chances for millions of people.
CAFOD is calling for the reform of the HIPC initiative by shortening the time frame for debt relief and by providing the necessary funding for the swift cancellation of unpayable debts.
The debts of the world’s poorest countries are morally unjustifiable, economically disastrous and a silent, growing humanitarian catastrophe. It is time the international community accepts its responsibilities and pushes through an agenda for change.
DEBT RELIEF FOR THE WORLD’S POOREST – MAKE OR BREAK
The HIPC initiative
In order to reach the point at which debtors obtain debt stock relief, (low income countries only) debtor countries have to pass through two three-year phases of World Bank/IMF supported adjustment programmes. Before the first three year stage can begin, Paris Club creditors have to agree on the stock of government to government debt which is to be made eligible for 67 per cent relief.
At the end of the first three-year period, countries reach a "Decision Point" when their creditors determine whether their debts are sustainable. If the debts are not sustainable, debtors are given 67 per cent reductions on debt stock eligible under the Naples Terms.
If their debt is still judged to be unsustainable, they proceed to the second three-year stage accompanied by up to 80 per cent relief on eligible Paris Club debt. Donors are expected to continue their support in the form of World Bank grants to assist in multilateral debt servicing.
After six years, at "Completion Point", all creditors - Paris Club members, other bilateral sources and private commercial sources - provide equal shares of 80 per cent relief on eligible debts. Multilateral sources – the IMF, World Bank and regional development banks – make up the remaining debt relief until a country’s debts are judged to be sustainable.
The HIPC initiative – Debtors’ needs or Donors’ wants ?
The HIPC initiative’s inception was a welcome recognition of the unsustainability of many poor countries' debts. Its design, although complex and therefore vulnerable to failure, was nevertheless a promisingly comprehensive approach to tackling debtor countries’ external debts – whether commercial, bilateral or multilateral.
Its central aim was to enable highly indebted poor countries to achieve a position of debt sustainability within a period of six years.
However, in the first year of the policy’s operation, four critical weaknesses have emerged which threaten the aim of eliminating the debt obstacle to the development ambitions of the world’s poorest countries.
1. Creditors delaying relief
The focus of the HIPC initiative has, in practice, shifted from its original position of debt relief according to need, to a position of debt relief according to willingness to pay.
The delays and obstacles put forward by Paris Club members over Uganda reaching its Completion Point have, according to the Ugandan Finance Ministry, cost the country an estimated US $69-89 million. This has resulted in a substantial set-back to the Government of Uganda’s plans to increase primary school enrolments.
Similarly, Bolivia, one of Latin America’s poorest countries, has had its debt cancellation delayed because its biggest single creditor, the Inter-American Development Bank (IDB), will not provide its share of relief. The intransigence of some of the IDB’s biggest shareholders (Argentina and Mexico) has held up the prospects of quick settlement for the Bolivians.
The central weakness of the HIPC initiative arises from its dependence on unanimity among creditors and uniform willingness to share the burden of the costs of debt relief. In practice, the package can be blocked at the whim of the most intransigent creditors.
Delays caused by objections from creditors and the HIPC policy’s insistence on burden sharing now threaten the framework’s central organising theme – the concept of debt relief on the basis of debt sustainability.
There are three other critical failings in the design of the HIPC framework, which cast doubt on its promise to deliver a "robust exit" from the debt burden.
2. Policy conditions without pro-poor policies
HIPC governments have to follow the tight economic conditions set out in austere International Monetary Fund (IMF) structural adjustment programmes for at least 6 years.
Typically, these require cutting back on social sector spending – a cost borne most heavily by the poorest and most vulnerable members of society. CAFOD’s own research has shown that the costs of structural adjustment packages are felt most acutely by the poor. The economic and social severity of the IMF’s programmes under its Enhanced Structural Adjustment Facility (ESAF) has resulted in many governments defaulting on their programmes.
By 1993, only 5 out of a total of 26 countries had completed ESAF agreed programmes within their timeframes. The World Bank’s own 1994 data shows that only six out of 29 adjusting countries achieved decisive macroeconomic improvements.
If defaulting HIPC countries fail to meet tight economic conditionalities set by the Bretton Woods Institutions, they are vulnerable to falling out of the HIPC framework altogether.
3 Inappropriate measures of HIPCs’ debt sustainability
Another crucial technical weakness stems from the HIPC framework’s narrow measures of debt sustainability.
The HIPC policy measures sustainability by debtor countries’ capacity to service external debts in terms of their foreign exchange income from trade. A debtor country’s thresholds are measured by the Net Present Value of their debts in proportion to their exports. Sustainable levels of debt are judged to be under or between 200-250 per cent of the country’s annual exports and a debt service-to-exports ratio of 20-25 per cent.
However, even the World Bank’s April 1997 "CAP" paper admits that the levels of debt cancelled after the full 6-year period may be insufficient to sustain HIPC’s promise of a "robust exit" from the debt burden. The paper concedes that, "sustainable growth without recourse to adjustment lending or balance of payments support may be reached in many HIPCs, although in some cases,…this support may need to continue until several years after the completion point." In other words, their debts will still be serviceable only by borrowing more money.
Research commissioned by the Dutch government also questions whether the current ratio measuring sustainability would provide an appropriate threshold at which debt would be payable. It proposes lower thresholds of between 100-150 per cent for the Net Present Value of debts-to-export ratio.
4 Small eligible debts leads to small relief
A fourth major constraint of the HIPC initiative is its restriction of debt remission to a small pool of eligible debt. "Eligible debt" in this case is defined as debts accrued before a cut-off date set by creditors. Zambia’s eligible debts for instance are those it accumulated before 1983. The 80 per cent debt relief announced by Paris Club creditors in practice amounts to an average of just 17 per cent of a debtor country’s total debt.
In summary, the technical and practical fragility of the HIPC initiative, the narrow definition of what constitutes debt eligible for cancellation and creditors’ insistence on equitable burden sharing of liabilities means that the likely outcome is only modest relief stretched over unnecessarily long timescales.
When the proportion of the world’s poorest countries’ fiscal revenues claimed by debt-servicing is on average 40 per cent and when some of those countries would have to allocate over 100 per cent of their revenues to debt-servicing if they were to meet their debt obligations in full – there is clearly a need for a substantial breakthrough in the ongoing perpetuation of the debt cycle. As it stands, HIPC will not provide such a breakthrough.
A Case of Double Standards
The concept of debt sustainability is not one that is imposed solely on the poorest debtor countries. In fact, four out of the G7 creditors use this measure as a guide for balancing their own books. But their guide implies a much lower level of debt than that which they impose through the Boards of the IMF and World Bank on the poorest countries in the world.
The criteria that Britain, France, Germany and Italy impose for membership of the European Monetary Union imply a maximum sustainable level of debt, as a proportion of government revenues, of around 150 per cent. Yet the HIPC agreement imposes on the world’s weakest economies - where the need for government spending on poverty eradication is that much greater - a much higher capacity to carry their debts; some 280 per cent of debts-to-government revenues.
Germany’s Finance Ministry, one of the most obdurate members of the Paris Club and itself a substantial beneficiary of debt relief in the 1950s, also exhibits double standards when it comes to debt relief for the world’s poorest.
Germany’s post-war deflationary policies, similar to IMF adjustment policies today, were thought to be inappropriate for ensuring economic growth sufficient to maintain its debt-servicing obligations. The policy framework to achieve a level of sustainability for Germany’s post-Second World War debts was guided by the need to expand its economy’s export capacity in combination with generous cancellations of its debt stock. The outcome of this substantial relief package brought its debt service-to-exports ratio down to a sustainable 5 per cent - a fifth of what Germany now expects from the world’s poorest.
Instrumental in providing generous terms for Germany's debt relief was the domination in international financial planning of significant political will to help Germany recover its economic health. It is deeply shameful that today’s German government refuses to afford the same generosity for the world’s poorest that it was a beneficiary of in its post-Second World War debt settlement.
Perverse Economics
To allow poor countries’ debt burdens to persist at current levels makes no economic sense. Debt repayments absorb precious foreign exchange and domestic savings thereby undermining the ability of indebted countries to invest in their own productive capacity.
The debt overhang has a deterrent effect on potential investors by introducing uncertainties into their projected returns on investments.
This results in the continuing marginalisation of Sub-Saharan Africa from global trade and Foreign Direct Investment (FDI). The region’s share of the flow of FDI to the developing world shrunk from 3% in the early 1990s, to 2.4% in 1996.
This deterrence is paralleled in the domestic economy, where debt repayments absorb government revenues and domestic savings, narrowing the scope for domestic public and private investments.
Other costs associated with the continuing renegotiations between debtor governments and their creditors include less visible "transaction costs". These costs divert scarce policy planning resources away from efficient government and administration. Between 1980 and 1996, 30 African governments have been engaged in over 10,000 negotiations with their creditors.
Economic growth is accepted as a necessary condition for poverty reduction. For Sub-Saharan Africa to meet the OECD targets to halve poverty by the year 2015, the United Nations Development Programme (UNDP) estimates the region’s economy needs annual positive per capita growth rates of at least 1.4%, compared with the negative growth of 2.4% experienced between 1990 and 1994.
This ambition is severely constrained by the debt burden.
It is one of the perverse ironies of the debt burden that it results in economic conditions which undermine the ability of those countries to grow, to reduce poverty, and to sustain and repay their debts.
The Silent Holocaust
All but six of the heavily indebted poor countries fall within the lowest human development ratings. This measure is an indication of a country’s basic services in health and education, economic growth and the growth of income and opportunities.
In these, the world’s most underdeveloped countries, scarce resources are being diverted to meet debt repayments. Sub-Saharan governments, for instance, transfer to Northern creditors four times what they spend on the health of their people.
In the words of the 1997 United Nations Development Programme’s Human Development Report:
"Relieved of their annual debt repayments, the severely indebted countries could use the funds for investments that in Africa alone would save the lives of about 21 million children by 2000 and provide 90 million girls and women with access to basic services."
The obduracy of particular Paris Club members on debt relief proposals most notably America, Germany, Japan and Italy gives rise to grave charges of complicity in the deaths of millions of the world’s most vulnerable people.
The international financial institutions and Paris Club members to the large North-South aid flows and provision of social safety nets to alleviate the harshest consequences of the debt regime.
In 1994, the aid inflows to Sub-Saharan Africa amounted to US $13.9 billion. However, many of those countries acted as little more than revolving doors for the aid money as their debt servicing outflows amounted to US $11.2 billion over the same period.
The findings of CAFOD’s structural adjustment monitoring project in Zambia shows how weak social safety nets are. The poorest communities are unable to gain access to the existing, mostly inadequate, social welfare provisions.
The introduction of user fees and cost recovery measures in health and education have taken a heavy toll on Zambia’s poorest communities. The CAFOD-funded SAPs monitoring project also shows that the country’s debt burden and its accompanying adjustment conditions are having an irreversible impact on the country’s education provision, its health and education infrastructures and are undermining Zambia’s future ability to participate in the global economy.
According to the project’s findings, a Zambian teacher’s salary does not even meet half the cost of the food requirements for an average family. Schools are without books and clinics without medicines.
In a paper by the Swedish international development agency SIDA, gross enrolment ratios in primary education in Zambia increased in 1985 to 96 per cent , but fell away in the 1990s to below 80 per cent. In some urban areas surveyed, one third of primary school aged children failed ever to start school.
In an age when economists talk of the importance of education in terms of a nation’s human capital formation, the debt burden, by absorbing opportunities for social sector spending, is remorselessly crushing the future development prospects of whole nations such as Zambia.
Zambia – A case for immediate debt relief
With 85 per cent of its population struggling in absolute poverty, Zambia’s eight million people are among the poorest in the world. In the 1990s, its human development indicators show rising infant mortality rates, falling per capita incomes and falling adult life expectancies. The country’s need for debt relief is overwhelming and immediate.
With a Gross Domestic Product of only US $1.6 billion and a total external debt stock of US $6.7 billion, the country has no prospect of meeting all its obligations to debtors. Zambia in economic terms is insolvent – bankrupt.
Despite undertaking structural adjustment reforms since 1993, Zambia is not scheduled to reach its Completion Point under the HIPC initiative until 2002. Under all of the HIPC’s criteria, the country’s debt burden is not sustainable.
Between 1993-95, its average total Net Present Value of Debt-to-exports ratio was 441 per cent (HIPC’s sustainability threshold is between 200 and 250 per cent). And its ratio of debt servicing to exports was a staggering 89 per cent (HIPC’s threshold is 20-25 per cent). In short, Zambia’s debts are wholly unsustainable.
In a country with one of the poorest human development indices in the world, debt-servicing payments dwarf government expenditures, which shape the life-chances of most Zambians.
In 1996, for every US $1 the Zambian government spent on health, it spent US $3 on servicing its debt obligations. This drain on health services expenditure is happening in a country where one in every five children dies before reaching their fifth birthday.
The CAFOD-funded structural adjustment monitoring Project in Zambia shows that significant numbers of sick and seriously ill people are deterred from seeking medical help because of "cost recovery" user fees levied as part of Zambia’s Structural Adjustment Programme. A survey undertaken in Lusaka in 1994 found that there was a two-thirds drop in outpatient attendance in 11 urban clinics.
This inability to gain access to health care is not part of a temporary adjustment process.
All the available evidence points to the increasing incidence of avoidable deaths of adults and children resulting from policies which are not pro-poor and which are tied directly to the debt burden.
While Zambia’s debts and the associated policy environment is directly contributing to the erosion of the life expectancy of today’s Zambians, a similar pattern in declining education spending is eroding the life chances of Zambians in the future.
In the years following its independence from colonial rule, the Zambian government gave a high priority to investing in its country’s education. Ten years ago, Zambia had one of the highest primary school attendance rates in Africa.
The proportion of Gross National Product Zambia devotes to education has more than halved since 1980 and it is now one of the lowest spending countries in Africa.
Public expenditure on education now amounts to just over one fifth of what the government spends in debt servicing.
Again, in spite of assurances from the World Bank and IMF that social safety nets provide waivers from school fees for poor families, the evidence from CAFOD’s SAPs monitoring project shows that the poorest families are unable to afford even the minimal contributions required for schooling.
The consequences of rising school fees and collapsing educational infrastructures have resulted in parents sending fewer children to school.
In the invidious choices poverty presents to poor people, it is female children who usually lose out in favour of boys’ education. Even one or two years’ education will result in these children having fewer and healthier children of their own later in life, with greater prospects of managing their households more effectively.
As in other indebted countries, the levels of poverty in Zambia and its need to reverse the decline in its human development necessitate a review of its prospects for substantial debt relief under the HIPC initiative.
So far, all the indications are that the HIPC initiative’s present timetable for debt relief for Zambia, the levels of debt cancellation it is likely to receive and the policy conditions under HIPC’s required Structural Adjustment Programmes are wholly insufficient to provide any real hope of change for most Zambians.
Conclusion
The HIPC initiative is in need of immediate reform because it is failing to provide sufficient levels of debt relief to match the scale of basic human needs. Yet the HIPC initiative, in its current design, does not include the imperative of human development in its measurements of debt sustainability.
CAFOD is calling for the inclusion of human development priorities in the HIPC initiative’s analyses of sustainability thresholds and eligibility criteria.
The UNDP provides a standardised and impartial approach to measuring country levels of poverty. HIPC’s analysis of debt sustainability thresholds should be adjusted to include the challenge presented by the levels of debtor country poverty as calculated by the UNDP.
Donor governments, particularly members of the G7, must speedily accept that their present policies on debt relief are not producing results for the worlds’ poorest.
What is lacking is the necessary political will on the part of the world’s richest creditor governments for international debt cancellation.
The world’s richest governments have signed up to the OECD’s target to halve global poverty by the year 2015. The debt overhang represents a serious obstacle to growth and poverty eradication in poor countries. If the international community is to have its policy declarations taken seriously, the rhetoric of its ambitions must be matched in the implementation of its policies.
Henry Northover - Public Policy
CAFOD - October 1997
GLOSSARY
Paris Club members: Ad hoc groupings of creditor governments. Major creditors include: Austria, Australia, Canada, France, Germany, Italy, Japan, United Kingdom, United States of America, Sweden, the Netherlands, Belgium, Norway amongst others.
G7 members: Canada, France, Germany, Italy, Japan, UK and US. The 1997 G7 Summit in Denver Colorado agreed to the Russian Federation joining what is now the G8.
OECD: Organisation for Economic Co-operation and Development members - Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the UK and the USA. Mexico joined in 1994.
Naples Terms: Concessional debt reduction terms for Low-income countries approved by the Paris Club in December 1994 and applied on a case by case basis. Countries can receive a reduction of eligible external debt of up to 67 per cent in Net Present Value terms.
Trinidad Terms: Proposed at the Commonwealth Finance Ministers’ September 1990 conference. The terms would have reduced the stock of outstanding debt owed to Paris Club creditors by two thirds. Not accepted by creditors, who adopted the Enhanced Toronto Terms in 1991 (see below).
Toronto Terms: A menu of options (1988) for reducing official debt in low-income, debt-distressed countries – including reduced interest rates, long grace and repayment periods and partial write-offs.
UNDP (United Nations Development Programme): Created in 1966 to administer and co-ordinate development projects and technical assistance provided under the auspices of the UN system.
IMF (International Monetary Fund): Set up in 1947 to monitor the world’s currencies by helping to maintain an orderly system of payments between all countries. To this end, it lends money to its members facing serious balance of payments deficits, subject to a variety of conditions.
World Bank Group: Consists of the the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the International Development Association (IDA), the International Centre for Settlements of Investment Disputes and the Multilateral Investment Guarantee Agency. The IBRD is a lending institution whose official aim is to promote long term economic growth that reduces poverty in developing countries.
Inter-American Development Bank: An international financial institution created in 1959. Owned by the 46 member countries of the hemisphere.
Poor Countries Decision Point Completion Point
click to see table
PRESS GUIDE
The Board meetings of the World Bank and International Monetary Fund provide a crucial test of the future success of the HIPC initiative in providing for an end to the ongoing debt crisis.
Out of the 41 countries qualifying as heavily indebted and poor, only 2 will gain modest amounts of debt remission by the year 2000.
The UNDP estimate that debt and debt-servicing payments could, if re-directed to expenditure on health care, save the lives of seven million people a year.
The total cost of providing debt relief for the 20 worst affected countries would amount to between US $5.5 billion and US $7.7 billion – less than a third of the cost of the Channel Tunnel and less than the cost of one Stealth bomber.
Public espousals on the part of the Bank and Fund claim that implementation of the HIPC initiative provides the poorest countries with sustainable levels of debt or a "robust exit" from the debt burden. But a recent World Bank document shows that the amount of relief provided will not lead to sustainable debt burdens and will necessitate continued external support to finance debt repayment obligations.
Recent debt relief proposals have been met with intransigence from Germany. Given the generous settlement enjoyed by the Federal Republic after the Second World War, its judgement of its own acceptable levels of debt sustainability in EMU criteria and its recent volte face on the issue of revaluation of its gold stock – its current position towards the world’s poorest countries is hypocritical and grossly inhumane.
Under current HIPC proposals, Zambia, with a GDP of $1.6 billion and external debts of $6.7 billion, will have to wait until the year 2002 before its debts will be reduced to what the Bretton Woods’ institutions regard as sustainable levels. In a country where 1 in 5 children die before their fifth birthday, the government spends US $3 on debt repayments for every US $1 on health.
Following independence, the proportion of GNP Zambia devoted to education was one of the highest in Africa - it is now one of the lowest. Education spending now amounts to just over one fifth of what government spends in debt servicing. CAFOD research shows that a teacher’s salary covers just half of the cost of an average household’s food requirements.
Despite previous initiatives on debt relief (Trinidad, Toronto and Naples terms), the total debt stock is increasing. The 41 HIPC countries have seen their total debts rise from US $55 billion in 1980, to US $183 billion in 1990, reaching a total of US $215 billion in 1997.
The major world economies have signed up to OECD proposals to halve world poverty by the year 2015. For many of the poorest countries in the world, the primary obstacle to economic growth and poverty eradication is the debt burden. The Paris Club Creditors need to provide the necessary action to accelerate the HIPC process and to provide more generous funding. Without the action to match the rhetoric of their ambitions with the realities of their policies, the world’s richest creditors stand accused of gross negligence and shameful inhumanity.
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