While the article discussed what he chose to term “three alarming developments”, it is his reckless spewing of venom on the proposed External Debt Clearance strategy by the Minister of Finance (Tendai Biti) that smacks of someone who is benefiting from the current sorry state of the country, and wishes to defend the status quo even if it means doing so at the expense of the majority.
Or is it because he had to criticise anything that the Finance minister does to appease his erstwhile club members and build his credentials prior to submission of his application letter for readmission into Zanu PF? Whatever the reason, we are now sure it was not for the benefit of the majority and I will explain why.
According to Moyo, Zimbabwe would humiliate itself “permanently” if it seeks debt relief through the Heavily Indebted Poor Country (HIPC) initiative.
I wonder whether Zimbabwe is not already humiliated by, for the past 10 years, defaulting on its external obligations. Rather than viewing it as an instrument to humiliate the country, the HIPC initiative will instead extricate the country from membership of the undesirable axis of defaulters, a grouping that also have war-torn Sudan and Somalia as members.
His ranting goes on to allege that Biti’s motives smack of a person facilitating the takeover of day-to-day administration of Zimbabwe by the US and Britain through IMF and World Bank “as their control-instrument of choice”.
Uganda and Tanzania, our fellow African brothers (even Zambia, Malawi and Mozambique) went through the whole HIPC process and had a substantial chunk of their debts cancelled but have retained their sovereignty. Their economies are doing well and they can afford to spend more on poverty reduction programmes.
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Let me share with readers what the HIPC initiative entails and then point out attendant benefits that would accrue to countries upon accession and full implementation of the initiative.
The HIPC initiative was launched in 1996 by international creditor (lenders) institutions such as the International Monetary Fund (IMF) and World Bank (WB), in an effort to address perpetual external debt overhang problems of heavily indebted poor countries.
The initiative gave (and still gives) countries with high debt burdens a platform to engage their major international creditors and lobby for reduction (or cancellation) of their debt stocks and flows to sustainable levels. Central to this initiative is the theme “no poor country should face a debt burden it cannot manage”. A country with a high debt burden spends a large portion of its hard-earned annual income on servicing these debts as they fall due. The result is that very little, if anything, of the country’s annual income goes towards investment in social services like health and education, with the attendant social effects of unemployment, HIV and Aids, hunger and destitution getting worse.
In the HIPC Initiative, creditors agree to erase the debts so that the huge resources that would have gone into debt servicing are channelled towards poverty reduction programmes. The gist is to ensure that the financial resources unlocked from debt cancellation are spent on programmes that benefit the poor. That is empowerment, isn’t it?
The whole initiative thus revolves around the development and implementation of a credible Poverty Reduction Strategy Programme. This pro-poor thrust makes the HIPC initiative more appealing to governments that believe in the concepts of equality of opportunities and broad-based empowerment.
To be considered for HIPC initiative assistance, a country must fulfil the following conditions:
- Be eligible to borrow from the World Bank’s International Development Agency (IDA), which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Facility, which provides loans to low-income countries at subsidised rates;
- Face an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms. The benchmark for this is a debt-to-export ratio of at least 150% or 250% of fiscal revenues. Zimbabwe is well above these ratios and its debt is therefore unsustainable;
- Have established a track record of reform and sound policies through IMF and World Bank-supported programmes and;
- Have developed a Poverty Reduction Strategy Programme through a broad-based participatory process in the country.
Once a country has met or made sufficient progress in meeting the above criteria, IMF and World Bank formally declare the country’s eligibility for debt relief, and other creditors make commitments to reducing debt to a level that is considered sustainable. Debt is considered sustainable if it can be serviced inter-temporally without compromising the future social and economic development path of a country. This first stage under the HIPC initiative is referred to as the decision point. Once a country reaches the decision point, it may start to receive interim relief on obligations falling due.
A country qualifies for full and irrevocable debt relief from participating creditors upon reaching the completion point.
The completion point is triggered by progress (measurable indeed) made on the implementation of the PRSP (for at least a year) together with continued track record of satisfactory performance on an IMF program. Some triggers relate to progress in social areas such as health and education, while others may relate to fighting corruption to give donors sufficient confidence that debt relief assistance is spent on programmes that benefit the poor.
So far, 24 countries have reached the completion point: Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Ethiopia, the Gambia, Ghana, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tomé and Principe, Senegal, Sierra Leone, Tanzania, Uganda, and Zambia.
On March 28 2006, the Board of International Development Assistance (IDA) approved IDA’s participation in the Multilateral Debt Relief Initiative (MDRI). The MDRI provides HIPCs “that have reached the completion point irrevocable, up-front cancellation of 100% debt owed to IDA, the African Development Fund, the IMF, and the IADB”. This is in addition to debt relief already committed under the HIPC Initiative.
We are not short of examples of African countries that benefited from these debt relief initiatives. Our fellow Sadc brothers in Tanzania have received a whopping US$5,3 billion debt cancellation (US$1,5 billion under HIPC and US$3,8 under MDRI) while Uganda had more than US$2 billion of its debt cancelled just like that. Ghana received more than $3,5 billion of debt relief through the HIPC initiative in 2002. Moreover, they retained their sovereignty too!
With HIPC and MDRI, all financial resources unlocked from debt cancellation go towards tackling the high poverty levels in the country. It is my considered view that the freed resources from debt cancellation and other forms of debt relief, if properly invested, would trigger real economic growth that should eventually lead to nation building.
Remember nation building does not happen haphazardly hence as a nation we need to have carefully formulated, time consistent and credible development plans.
That is what the IMF and World Bank programmes stand for, not regime change. Rather, the upfront and irrevocable cancellation of eligible debt stock under the HIPC and MDRI enables the country to graduate from the economic supervision of the IMF and World Bank.
This may result not only in enhanced domestic fiscal space but also in the expansion of national policy space to enable our beloved country to design appropriate development strategies for economic growth and poverty reduction.
There we are, fellow Zimbabweans. Why not go the HIPC-way and get a fresh start as a country? Do we want to keep this burden over our heads when we can pass it on, even to those that we may consider evil? Shall we sacrifice the health and education prospects of 95% of our have-nots brothers and sisters because 5% of our affluent leaders feel humiliated by declaring our country a heavily indebted poor country? Had we not already slid into the bracket of poor nations when we failed to provide ourselves with medical care during the cholera epidemic? Or are we still in denial? Let us be real, accept our unfortunate situation, and have a new start. I do not believe we are “too rich to be poor”.
With the kind of thinking unfolding from those that are supposed to lead us, chances of ever eradicating poverty in Zimbabwe seem very remote, if not zero in our lifetime.
Not only is the country incapable of clearing its huge debt arrears of US$3,1 billion but is also struggling to pay salaries for its civil servants who are currently subsisting on less than US$5 per day (even senior RBZ employees’ pittance salaries are paid in envelopes and they are not given payslips, neither do they have bank accounts).
As Zimbabweans, it is incumbent upon us to say no to those that wish the perpetuation of the status quo, where 95% of the population remains poor while they accumulate more wealth. Otherwise we risk being judged harshly by future generations for having allowed those individuals to push us into abyss poverty.
Don’t you think those resources that you insist should clear arrears are rather better channelled towards buying books for pupils in secondary schools like Chasiyatende down in Chivi? For the parents of these pupils genuinely cannot afford to send them across the Limpopo for a decent education. Why challenge the HIPC when it prioritises them?
- Tivy Chinyange is the pseudonym for a Harare-based independent economist. He can be contact on [email protected].
Tivy Chinyange
