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Africa: Oxfam Debt Statement, 2
Africa: Oxfam Debt Statement, 2
Date distributed (ymd): 970423
Document reposted by APIC
This posting, and the previous one, contain the executive summary of
a new Oxfam International policy paper published this month. The full text
of the paper, which includes additional background on Uganda, Mozambique
and other African countries, can be found on the Oxfam Web site at
page no longer available 10/99
The Oxfam International Advocacy Office can be contacted at 1511 "K"
Street, Suite 1044, Washington DC 20005, USA; Tel: 1 202 393 5332; Fax:
1 202 783 8739; Email: email@example.com.
Poor Country Debt Relief: False Dawn or New Hope for Poverty Reduction?
(continued from part 1)
The limitations of HIPC implementation
Applied with flexibility and common sense, the HIPC framework could
make a critical contribution to poverty reduction. Instead, the initiative
is being implemented more with a view to minimising the costs to creditors
than to maximising the benefits for debtors, and poverty reduction considerations
remain of marginal concern. The cases of Uganda and Bolivia raise particularly
serious concerns. Both countries have exemplary records in maintaining
economic reform programmes for over a decade; both have unsustainable debt
burdens, and both have governments committed to converting savings from
debt into initiatives to reduce poverty. The case for early and decisive
action to reward this record is overwhelming. In the event, debt relief
has been delayed for a year and, in Bolivia's case, the threshold for debt
sustainability has been set absurdly high, thereby reducing debt relief.
The costs for both countries will be considerable. In financial terms,
the delay in debt relief will reduce the foreign exchange available for
essential imports and create a climate of uncertainty for private investment.
In social terms, the costs are beyond estimation. According to the Ugandan
Government, the finance lost as a consequence of delaying debt relief will
amount to around $193m over the next year. To put this figure in context,
it is equivalent to six times the national health budget or more than the
total cost of providing free universal primary education for four children
in each family.
In the case of Bolivia, the combination of a delayed completion date
for debt reduction and the IMF-World Bank's decision to set debt-sustainability
thresholds at unrealistically high levels will cost the country around
$241m. For creditors, this is a tiny sum. Measured against the social sector
budget in Bolivia it is equivalent to double the national health budget
or seventeen times projected spending on rural clean water and sanitation
under the Government's poverty reduction programme.
Delaying debt relief sends the wrong political signals to countries
in which governments have undertaken politically painful economic reforms.
It also sends the wrong signals to countries in which the reform process
is still being established. If other countries suffer the same treatment
as Uganda and Bolivia there is no prospect of the HIPC debt crisis being
resolved until well into the next decade. On a best-case scenario, the
requirement that countries adhere to two consecutive IMF programmes before
qualifying for multilateral debt reduction will mean:
- Ethiopia will not qualify for debt reduction until the end of 2000,
even though the country still faces huge post-war rehabilitation and reconstruction
problems. It is also besieged by recurrent drought and relentless environmental
- Nicaragua, one the world's most indebted country with each citizen
owing the equivalent of three times their annual income, will not qualify
- Mozambique, Tanzania, and Niger will not qualify until 2002-2003. *
Zambia will not qualify for multilateral debt relief until at least
2002 on a best case scenario. This is despite the fact that the World Bank's
poverty assessment for Zambia concluded that the country's "large
debt stock will have to be addressed more directly (i.e. than existing
debt relief measures) if Zambia is ever to achieve sustainable and self-sufficient
growth." Over half of that debt stock is accounted for by multilateral
- Rwanda may not qualify at all, and if it does it will be after 2003,
despite the country's desperate post-genocide reconstruction needs.
- Heavily indebted and impoverished countries such as Guyana, Honduras,
Benin, Mali, and Chad are likely to be excluded from HIPC debt relief on
the basis of narrow financial criteria.
Debt relief: an investment in human development
Slow implementation and the limited application of the HIPC framework
will undermine its effectiveness in reducing poverty in some of the world's
poorest countries. As a group, the 41 HIPCs display the worst social indicators
in the developing world. All but six fall into the lowest category of human
development in the UNDP's Human development Index. Translated into human
terms, this means that a child born in a HIPC is 30 per cent less likely
to reach their first birthday than the average for all developing countries;
and that a mother is three times more likely to die in childbirth. The
IMF in particular has been at pains to stress that debt relief is not a
panacea for poverty. Of course it is not. But it could make an important
contribution by increasing the financial resources available for investment
in people. It is surely unacceptable that most HIPC governments spend over
20 per cent of their revenues on debt servicing when confronted by such
pressing human need. And it is outrageous that, in many countries, debt
repayments exceed social expenditures - often by a huge margin:
- In Mozambique, debt servicing for 1996 absorbed double the amount allocated
to the combined current expenditure budgets for health and education. This
is in a countrywhere one-quarter of all children die before the age of
five as a result of infectious disease; and where two-thirds of the population
- In Zambia, infant mortality rates are rising in the face of collapsing
provision of health, clean water, and sanitation. Yet for every $1 spent
on health, the country spends an additional $4 on debt servicing.
- In Ethiopia, over 100,000 children die annually from easily preventable
and treatable diarrhoea. Less than 40 per cent of the rural population
have access to the most basic health facilities. However, debt repayments
are equivalent to four times public spending on health.
- In Niger, the country at the bottom of the Human Development Index,
life expectancy averages 47 years and only 14 per cent of the population
is literate, but debt servicing absorbs more than the combined budgets
for health and education.
- In Nicaragua, where three out of every four people live below the poverty
line, where one-quarter of the under-five population suffers nutritional
deficiency, and where 35 per cent of the population is illiterate, debt
repayments exceed the total social sector budget.
- In Bolivia, where over 90 per cent of the highland population is in
poverty, where only 16 per cent of that population has access to safe water,
and where over one-third of women are illiterate, debt repayments for 1997
account for three times the spending allocated for rural poverty reduction.
Such facts illustrate the lethal interaction between the debt crisis
and the fiscal crisis - the growing inability of governments to finance
spending on basic services out of domestic revenues. They also illustrate
the high social costs of debt, in terms of lost opportunities for health,
education, and poverty reduction, and the potential human welfare gains
which could be achieved through debt relief.
The scale of these potential gains is underlined by our review of the
seven national plans for achieving the targets for human development set
by the World Summit for Children in 1990. Those targets included major
progress against malnutrition, preventable disease, and illiteracy, in
addition to a reduction by half in child mortality. This Briefing compares
the external financing requirements need to achieve these targets over
the period 1993-2000 for seven African HIPCs* against the debt service
payments of the same countries. The striking result is that, for all but
one country, debt servicing represents more than the external finance requirement
for the national plans.
What does this mean in human terms? We consider this question by assuming
that the World Summit targets for reducing child mortality and malnutrition
can be met with adequate finance and appropriate policies. If they were
met in the seven countries under review, the lives of over three million
children under the age of five would be saved over a seven year period;
and over four million cases of malnutrition would be avoided. For individual
countries, the human development gains would be enormous, with debt relief
contributing to measures which would save the lives of * 1.3 million children
in Ethiopia * almost 600,000 children in Mozambique * 475,000 children
in Niger * a combined total of around 440,000 children in Burkina Faso
Even before the wider benefits of reduced vulnerability to maternal
mortality and infectious disease, increased literacy, and improved productivity
are taken into account, these are very high returns on a very small investment.
In this Briefing we propose that governments willing to convert savings
from debt repayments into social investment should be rewarded with an
accelerated time-frame for debt relief. Eligibility would be through a
modified economic reform conditionality, along with a government commitment
to transfer between 80-100 per cent of any savings from debt relief into
a ring-fenced budget account for social investments. Concrete targets for
improving human welfare would be established through dialogue with creditors,
donors, and non-government organisations (NGOs). Debt relief funds would
be earmarked for specific investments, additional to those provided for
in existing budget plans, summarised in a debt-for-poverty-reduction contract.
The aim of such a contract would not be the erection of another hurdle
to eligibility for debt relief, but the creation of positive incentives
for poverty reduction. Performance would be closely monitored under the
World Bank's Public Expenditure Reviews. As in any contract, non- compliance
would be penalised. Debtor governments failing to undertake the expenditures
to which they have committed themselves would face a dollar-for-dollar
reduction in their aid budgets.
The World Bank could play a central role in working with governments
to draw up concrete plans and targets for converting debt into poverty
reduction initiatives. This would be entirely consistent with the vision
set out in the Bank's Strategic Compact. It would also enable the World
Bank to develop more participatory approaches to poverty reduction, engaging
with civil society and non- government organisations in identifying co-operative
approaches to financing and delivering social sector provision.
An agenda for reform
The central argument of this Briefing is that debt reduction could make
a decisive contribution to a broader social development strategy. That
is why Oxfam International is arguing for more effective implementation
of the HIPC framework, allied to some significant reforms. The time-frame
for debt relief must be accelerated, the level of relief increased, and
country coverage widened. An urgent review of the economic conditionalities
attached to debt relief is also needed.
At present, adherence to two IMF programmes is required for qualification
to the HIPC initiative. Yet these programmes have failed to establish the
conditions for economic recovery. They have also been pursued at enormous
social cost, with deflationary monetary targets taking precedence over
social spending. Moreover, two-thirds of IMF programmes break down before
completion, raising the prospect of protracted delays in HIPC implementation.
It follows that more flexible approaches to conditionality are required,
with economic reforms geared towards the real needs of poor countries,
rather the reckless pursuit of an outmoded monetarist idelogy. More generally,
poverty reduction must be integrated into the HIPC framework as a central
objective, rather than being appended - as is the case at present - as
a peripheral concern.
This Briefing proposes the adoption of a new debt-for-poverty-reduction
contract in the HIPC initiative, under which governments will be given
an incentive, in the form of increased debt relief and an accelerated time-frame
for implementation, to convert savings from debt into priority social investment.
Five broad reform measures are required.
(i) The time-frame must be accelerated. The end of the decade should
be established as a target date for ending the HIPC debt crisis. The period
of eligibility for multilateral debt reduction should be reduced from six
years to three years.
(ii) The debt sustainability thresholds should be lowered and broadened
to take into account human development levels. Threshold ratios for debt
service should be lowered to 15-20 per cent and for debt-to-exports to
150-200 per cent. For countries with exceptionally poor human development
indicators, lower thresholds should be considered on a case-by-case basis.
(iii) More weight should be attached to fiscal criteria. Upper ceilings
of between 15-20 should be set for the proportion of government revenue
absorbed by debt repayments, since expenditure in excess of this level
is likely to represent an unacceptable diversion of resources from investment
in priority social services.
(iv) Reliance on IMF economic conditionality should be abandoned. More
flexible approaches to policy conditionality are required, with less emphasis
placed on deflationary monetary targets and a higher priority attached
to employment creation and social investment. The alternative is to make
debt relief conditional on the adoption of policies which undermine, rather
than enhance, the position of the poor.
(v) Poverty reduction incentives should be integrated into the HIPC
framework. Countries willing to engage in a dialogue aimed at converting
debt relief into poverty reduction initiatives should be rewarded with
an accelerated time-frame for debt relief.
It is claimed by some that such reform would increase the costs of debt
relief to unrealistically high levels. Oxfam International accepts that
the costs of HIPC would rise - but what is an unrealistic price for an
initiative which could save over 3 million young lives - equivalent to
the combined populations of Adelaide, Edmonton, and New Orleans? The total
cost of the HIPC framework for forty one countries over an eight year period
is estimated at around $5bn, is equivalent to: * slightly over 1 per cent
of public spending in Britain * roughly one-twentieth of the sum spent
by Germany in financing reunification * less than US citizens spend annually
on training shoes.
Double spending on HIPC, and it would cost less than the resources mobilised
by the IMF to finance Mexico's financial rescue package. Triple it, and
it would still cost less than the New York City budget. If such investment
is regarded by the international community as unacceptably high, it is
a sad testament to the myopic vision of political leaders.
This material is being reposted for wider distribution by the Africa
Policy Information Center (APIC), the educational affiliate of the Washington
Office on Africa. APIC's primary objective is to widen the policy debate
in the United States around African issues and the U.S. role in Africa,
by concentrating on providing accessible policy-relevant information and
analysis usable by a wide range of groups and individuals.