Ms Ylva Hernlund, Thank you for providing these valuable links, particularly the Oxfam contacts in Prague where I will travelimg to over the week-end to attend the IMF/WB Annual Meetings. It is my intention to consult with NGOs such as Oxfam that are in the front-line of the Debt Relief campaign. Sidi Sanneh >From: Ylva Hernlund <[log in to unmask]> >Reply-To: The Gambia and related-issues mailing list ><[log in to unmask]> >To: [log in to unmask] >Subject: Africa: Debt Update (fwd) >Date: Thu, 21 Sep 2000 09:37:18 -0700 > >---------- Forwarded message ---------- >Date: Thu, 21 Sep 2000 09:14:55 -0500 >From: APIC <[log in to unmask]> >To: [log in to unmask] >Subject: Africa: Debt Update > >Africa: Debt Update >Date distributed (ymd): 000921 >Document reposted by APIC > >+++++++++++++++++++++Document Profile+++++++++++++++++++++ > >Region: Continent-Wide >Issue Areas: +economy/development+ >Summary Contents: >This posting contains excerpts from a press release by Oxfam >International with an analysis of the results of the Heavily >Indebted Poor Countries (HIPC) initiative to date, released in >advance of the IMF/World Bank meetings in Prague. Another posting >today contains a press release from the Africa Fund and statements >calling for debt cancellation from African-American religious leaders >and elected officials. For the full version of the Oxfam press release >and other related documents from Oxfam International, see >http://www.oxfam.org > >+++++++++++++++++end profile++++++++++++++++++++++++++++++ > >HIPC leaves poor countries heavily in debt: > >Oxfam International >18 September 2000 > >Oxfam International ([log in to unmask]) is a network >of eleven aid agencies working in 120 countries throughout the >developing world: Oxfam America ([log in to unmask]), >Oxfam-in-Belgium ([log in to unmask]), Oxfam Canada >([log in to unmask]), Oxfam Hong Kong ([log in to unmask]), Community >Aid Abroad ([log in to unmask]), Oxfam Great Britain >([log in to unmask]), Oxfam New Zealand ([log in to unmask]), >Intermon Spain ([log in to unmask]), Oxfam Ireland >([log in to unmask],[log in to unmask]), Netherlands Organization >for International Development Cooperation (NOVIB) ([log in to unmask]), >Oxfam Quebec ([log in to unmask]). > >Oxfam representatives are in Prague and available for interview or >comment: Seth Amgott From Czech Republic 0602 849 881 From abroad >+420 602 849 881 Arup Biswas From Czech Republic 0602 849 882 From >abroad +420 602 849 882 > >Heavily Indebted Poor Countries (HIPC) Initiative leaves poor >countries heavily in debt > >Background > >The Heavily Indebted Poor Countries (HIPC) Initiative will figure >prominently on the agenda of the IMF-World Bank annual meeting in >Prague from 19-26 September. Nine countries are currently receiving >debt relief under the Initiative. Current plans are for this number >to rise to 20 countries by the end of the year. The stated aim is >to leave heavily indebted countries with a sustainable debt >profile, and to provide resources for poverty reduction. IMF-World >Bank staff reports, prepared for the annual meeting, have cited >large financial gains for the HIPCs amounting to over $28bn. > >Research carried out by Oxfam suggests these headline figures >grossly exaggerate the real benefits of the HIPC Initiative. In the >first in-depth analysis of the implications of the Initiative for >government finances, the research suggests that the annual budget >savings for most countries will be modest. Some countries - >including Senegal, Tanzania and Zambia - will emerge from the HIPC >debt relief process in the perverse position of paying more on debt >servicing. Debt repayments will continue to absorb a >disproportionately large share of government revenue, amounting to >more than 15 per cent in six countries, and to over 40 per cent in >Zambia, Cameroon and Malawi. All but three of the twelve countries >reviewed in the Oxfam research will continue to spend far more on >debt servicing than on health and primary education after they have >received debt relief. > >The picture that emerges from the Oxfam research raises fundamental >questions about the adequacy of the enhanced HIPC Initiative. While >the Initiative will significantly reduce both the stock of >unpayable debt and the amount that countries would have to pay >without debt relief, it does not go far enough. Far deeper levels >of debt reduction are needed to leave governments with the capacity >to finance basic services. Oxfam recommends that a 10 per cent >ceiling should be set on the proportion of government revenue >allocated to debt servicing. > >Part of the problem with the existing HIPC framework is its narrow >perspective on debt sustainability. Repayment capacity is currently >defined primarily in terms of the debt-to-export ratio. Oxfam wants >to see a more poverty-focussed approach to debt sustainability in >which human needs figure more prominently. It argues that more >weight should be attached to the budgetary burden of debt and the >diversion of public finances away from poverty reduction >initiatives. > >As a group, the heavily indebted countries suffer from some of the >deepest and most pervasive levels of poverty in the developing >world. Over half of the population lives below the $1-a-day poverty >line, one-in-six children die before the age of five from >poverty-related diseases, and almost 50 million children are not in >school. To demand that governments in these countries spend more on >debt servicing than on the basic health and education needs of >their citizens is economically irrational, morally unacceptable, >and at variance with the HIPC Initiative's proclaimed goals of >providing a poverty-focussed debt relief framework. > >The enhanced HIPC Initiative > >The enhanced HIPC Initiative adopted by the Boards of the IMF-World >Bank at the 1999 annual meeting, following the Group of Seven >summit in Cologne, aimed at accelerating and deepening debt relief. >Under the reformed framework, which marked a step forward, the >threshold targets for net present value of debt-to-exports has been >lowered to 150 per cent. > >Much has been made by the World Bank, the IMF and the wider >creditor community of the generosity of the new HIPC Initiative. >Headline figures suggest that the amount of debt relief provided to >a group of 32 countries will double to $28bn (in net present value >terms), reducing the average debt-to-export ratio by 41 per cent to >138 per cent at decision point, and to less than 100 per cent by >2005. > >Comparing post-HIPC Initiative debt servicing with the amount that >countries would have to pay in the absence of debt relief points to >significant benefits. For the nine countries expected to have >reached decision point, total debt service relief amounts to $9.1bn >- three times the amount projected under the original HIPC >Initiative. This figure will rise to $20bn if the target of debt >relief for 20 countries by the end of the year is achieved. > >Documents prepared for the annual meeting in 2000 highlight >dramatic improvements in the debt profile of the HIPCs. The >debt/GDP ration is projected to fall from 47 per cent to 28 per >cent, and the debt service ratio from 15 per cent to 9 per cent. >Scheduled debt payments will fall by $800m. > >Such indicators have been used to present a positive picture of the >enhanced HIPC Initiative, notably for media consumption. >Unfortunately, they tell only part of the story. In particular, >they fail to capture the impact of debt relief on government >revenue and budgets. Despite repeated requests from non-government >organisations IMF-World Bank staff have failed to provide any >assessment of the proportion of government finance that will be >diverted to debt servicing after debt relief. ... > >The debt relief deficit > >In an attempt to assess the real implications of the HIPC >Initiative for government budgets, Oxfam has analysed post-HIPC >debt service projections for 13 countries. Eight of these countries >have reached their decision point and benefit from assistance under >the enhanced HIPC framework. Another four are expected to received >enhanced HIPC support this year. The potential budgets effects of >debt relief were captured by taking the average annual level of >debt repayment projected for the three years after countries reach >decision point. This figure was then compared with government >revenue in the decision point year. > >The findings suggest that the benefits of the HIPC Initiative in >terms of reduced debt servicing will be significant for a small >group of countries, negligible for a larger group, and non-existent >for several: > >* Increased debt servicing for three countries. Zambia, Tanzania >and Senegal all face an increase in debt service payments. The >largest increase will be in Senegal, where debt service payments >will almost double to $171m, reflecting the large pre-HIPC >Initiative gap between scheduled and actual payments. In Zambia an >increase in repayment to the IMF will raise annual debt servicing >by $75m, or one-third. > >* Limited benefits for four countries. Debt service payments will >fall by less than 20 per cent for Burkina Faso, Honduras, Guinea, >Malawi, and Mauritania. > >* Significant savings for five countries. Debt servicing will fall >by 30 per cent or more for Bolivia, Cameroon, Mozambique, Rwanda >and Uganda. > >One of the aims of the HIPC Initiative is to release resources that >could be used to reduce poverty from debt servicing. Given the >limits imposed on revenue raising capacity by low average incomes, >and the huge scale of unmet basic needs, this is an important >objective. > >The data derived from the Oxfam research strongly suggests that >unsustainable debt will remain a formidable obstacle to poverty >reduction efforts. Debt servicing will continue to absorb a large >share of government revenue in most countries, amounting to > >* 40 per cent of total revenue in Zambia >* 25-35 per cent of the total in Cameroon, Guinea, Senegal and >Malawi >* 15-20 per cent in Honduras, Mozambique, Tanzania and Mauritania >* 13-14 per cent in Burkina Faso and Mauritania > >Implications for public investment in basic services and human >development > >The limited budget savings provided through enhanced HIPC >Initiative debt relief means that some of the world's poorest >countries will continue to transfer far more to their creditors, >than they are able to invest in basic services. ... > >[In summary] > >* there are eight countries in which debt service payments will >exceed the budgets for health and education > >* in five of these countries (Zambia, Tanzania, Senegal, Mauritania >and Cameroon) debt repayments will exceed the combined health and >education budgets after debt relief. > >It is difficult to square these public-spending outcomes with a >genuine commitment to a poverty-focussed debt initiative on the >part of the donor community. As a group, the heavily indebted >countries are massively off track for achieving the human >development targets set for 2015. These include the halving of >extreme poverty, universal primary education, and a two-thirds >reduction in child mortality. If current trends continue, each of >these targets will be missed by a wide margin. ... > >The prospective scenario for individual heavily-indebted countries >underlines the enormous human development costs implicit in the >debt service projections summarised above. > >Burkina Faso. Under the HIPC Initiative, Burkina Faso will continue >to allocate around 13 per cent of government revenue to debt >servicing, or around $40m per annum. This amount may appear small >from the industrialised world. But in a country where almost one in >four children die before the age of five from poverty-related >diseases, spending on debt will represent double the spending on >health. Debt servicing will also exceed the education budget, even >though Burkina Faso has among the world's lowest school enrolment >and adult literacy rates. Fewer than a quarter of girls attend >school. > >Zambia. In the three years after HIPC debt relief Zambia will be >allocating around 40 per cent of government revenue to debt >servicing - one of the highest levels in the world. These resources >are urgently needed for investment in poverty reduction. Zambia is >one of the countries worst affected by HIV/AIDs. Nearly 13 per cent >of children are orphans (the highest rate in the world), and child >mortality rates are rising. During the 1990s the proportion of >children suffering from chronic malnutrition has risen from 39 per >cent to 53 per cent. As in other HIPC countries, poor health and >education indicators are linked to wider patterns of deprivation, >with over half of the population living below the extreme poverty >line. > >Senegal. The newly elected government has committed itself to >ambitious reforms in health and education as part of a renewed >national commitment to poverty reduction. However, its capacity to >deliver on the commitments made will be compromised by foreign debt >servicing. Average debt repayment will be equivalent to double the >combined health and primary education budgets. There is now a real >danger that debt servicing will undermine the Quality Education for >All programme that aims to achieve universal primary school >enrolment by 2008. Although aid flows will partially compensate for >debt servicing, development assistance for education will represent >less than half of government debt repayments. > >Malawi. One of the few HIPC countries to have made rapid progress >in education: expenditure on education has doubled as a proportion >of GDP to 5 per cent, with a major redistribution in favour of >primary schools. Free education was introduced in 1994, leading to >an increase in enrolment of around 3 million by 1997. Health >spending has also increased. Despite these positive budget trends, >Malawi faces immense problems. There is an urgent need to improve >the quality of education and to increase the rate of transition to >secondary school. Several key health indicators - such as infant >mortality - have stagnated, partly as a consequence of HIV/AIDs. >Almost 5 million people live below the poverty line. With foreign >debt absorbing around one-quarter of revenue, government capacity >to address these problems will inevitably be curtailed. > >Tanzania. Having entered the HIPC Initiative this year, Tanzania >will continue to allocate over one quarter of government revenue to >debt servicing for the next three years. This represents more than >public spending on health and primary education in a country with >over 2 million children out of school, and with 186,000 under-five >child deaths each year. > >Wider problems > >Inadequate levels of debt relief is just one of the problems >associated with the HIPC Initiative. Despite repeated pledges from >creditors, the pace of implementation remains far too slow. There >are also growing concerns about gaps in the Initiative. > >There are several reasons for the slow pace of implementation. In >some cases, unrealistic conditions have been set under the IMF >programmes that eligible countries must comply with in order to >receive debt relief. In Honduras, for instance, debt relief has >been held up because of IMF insistence on more rapid progress in >the country's privatisation programme. In other cases, weak >management appears to have been responsible. Malawi could have >received debt relief in May had IMF and World Bank staff completed >their debt sustainability analysis earlier. The delay may cost >Malawi around $50m in interim debt relief, if it enters HIPC in >November as planned. > >Several countries potentially eligible for debt relief are affected >by conflict. Earlier this year the British Chancellor Gordon Brown >outlined an initiative aimed at using debt relief as an incentive >for peace and reconstruction. The recent cease-fire in the war >between Ethiopia and Eritrea provides an important opportunity for >the creditor community to put this commitment into practice. >Failure to provide Ethiopia with debt relief will leave the >government facing chronic public financing problems. Scheduled debt >service payments amount to 60 per cent of export earnings. > >HIPC initiative eligibility currently extends to a group of around >40 low-income countries. That group does not include Nigeria, which >is Africa's largest debtor. Nor does it include chronically >indebted lower-middle-income countries such as Jamaica. The next >phase of HIPC reform needs to develop strategies for extending the >debt relief remit to other countries where unsustainable debt >threatens poverty reduction efforts. > >An agenda for reform > >The enhanced HIPC Initiative is failing to realise its potential. >Urgent reforms are needed to deliver on the commitments made by >creditors to provide a permanent exit from the debt crisis. Failure >to act will undermine efforts to link debt relief to national >poverty reduction efforts. > >During the annual IMF-World Bank meeting in Prague Oxfam is calling >for: > >* A new approach to debt sustainability. It is fundamentally >unacceptable for countries suffering widespread extreme poverty to >spend more on debt servicing than they invest in the health and >education of their citizens. No country emerging from the HIPC >Initiative should be required to allocate an amount equivalent to >more than 10 per cent of revenue to debt servicing. IMF-World Bank >debt sustainability analyses should include projections for the >amount of government revenue to be allocated to debt servicing. > >* Immediate debt relief to countries which commit to a 'Poverty >Fund' in the Interim Poverty Reduction Strategy Paper (PRSP): There >is an urgent need to accelerate implementation of the HIPC >initiative, and to strengthen the linkage between debt relief and >poverty reduction. Current approaches have become unduly >bureaucratic, causing delay in the provision of debt relief. New >approaches to eligibility are urgently needed. At the decision >point governments should be broadly on-track with their >macro-economic programmes. But the key requirement for entry into >HIPC should be the development of a poverty action fund, detailing >how debt relief finance will be allocated to poverty reduction >initiatives. Implementation of the fund would be monitored by >government, civil society and donors. Obvious priority areas would >include health, education, rural roads, water supply and employment >generation programmes. Such an action fund was pioneered in Uganda, >where a Poverty Action Fund helped to finance Universal Primary >Education, basic health and rural feeder-road programmes. The use >of debt relief to eliminate charges for basic education and health >is one option with potentially large human development returns. > >* Immediate and generous debt relief for Ethiopia. There is now a >real opportunity for using debt relief to underpin the peace in >Ethiopia. Having already been assessed under the original HIPC >Initiative framework, Ethiopia should immediately be reassessed and >provided with debt relief geared towards poverty reduction. > >* The extension of the HIPC framework. IMF-World Bank staff should >review the debt sustainability of countries such as Nigeria and >Jamaica not covered by the existing HIPC framework, but facing >chronic debt problems. > >************************************************************ >This material is being reposted for wider distribution by the >Africa Policy Information Center (APIC). APIC provides >accessible information and analysis in order to promote U.S. >and international policies toward Africa that advance economic, >political and social justice and the full spectrum of human rights. > >Auto-response addresses for more information (send any e-mail >message): [log in to unmask] (about the Africa Policy >Electronic Distribution List); [log in to unmask] (about APIC). >Documents previously distributed, as well as a wide range of >additional information, are also available on the Web at: >http://www.africapolicy.org > >To be added to or dropped from the distribution list write to >[log in to unmask] For more information about reposted material, >please contact directly the source mentioned in the posting. > >Africa Policy Information Center, >110 Maryland Ave. NE, #509, Washington, DC 20002. >Phone: 202-546-7961. 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