April 12, 2005

EU cautions against overspending after debt service relief / HIPC will not solve economic problems, says finance minister

The European Union has cautioned Zambia not to relent on fiscal discipline after it got a US$3.8bn World Bank debt waiver under a scheme for heavily indebted poor nations.
The EU in a statement said that Zambia still needed to implement economic reforms and poverty reduction policies that led the World Bank and the International Monetary Fund (IMF) to endorse the country's huge debt waiver. It cautioned Zambia against "temptations to relax budget discipline or use public resources for unintended purposes". The World Bank and IMF boards had before decided to let Zambia into the Heavily Indebted Poor Countries (HIPC) initiative, which aims to reduce the external debt of the world's poorest and most indebted countries to help them fight poverty. "Reaching HIPC completion point, does, however, not imply that all debts are cancelled and that all fiscal constraints are gone," the EU mission in Zambia said. Zambia owes international creditors more than $6.8bn.

In the meantime, Zambia’s finance minister Ng'andu Magande has noted that the HIPC initiative would not solve Zambia's economic problems alone. According to him, only economic growth and diversification would solve Zambia's problems. The HIPC completion was just one of the means to resolve the country's development hurdles. Magande also noted that following Zambia's achievement, the Paris Club creditors had invited Zambia to negotiate for debt relief in Mai. Multilateral creditors would also deliver HIPC assistance in different methods such as writing it off completely, writing it off as it falls due, or providing finances under better terms to pay off the debt.

Magande stressed that debt services would now be better compared to the time when Zambia had not attained her status. According to him, in 2006, Zambia would service US $96 million instead of US $237 million while in 2007, she would pay off US $121 million instead of US $262 million. In 2008, Zambia would service US $130 million instead of US $283 million and thereafter, the figure would average US $120 million instead of US $280 million.
"It is anticipated that Zambia will receive high private sector investment which should increase growth for the country," Magande said. "Reaching HIPC is also expected to increase aid from cooperating partners." (The Post, Lusaka)

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