The Roundtable Discussion on the theme
"Economic Development Priorities:
What Next After HIPC Completion Point and PRSP"

A Report
Introduction

Consumer Unity & Trust Society-Africa Resource Centre (CUTS-ARC), in partnership with Southern Africa Regional Poverty Network (SARPN), organised a half day stakeholders' roundtable discussion on the theme "Economic Development Priorities: What Next After HIPC Completion Point and PRSP" at Hotel Inter Continental, Lusaka on 15th December 2004.  The discussion was designed around but not limited to the following questions:

  • Is the Highly Indebted Poor Countries (HIPC) initiative a panacea or old wine in new bottles to debt sustainability or is debt sustainability a myth? 
  • Do Poverty Reduction Strategy Papers (PRSPs) really address the poverty challenge in many countries?
  • As countries move from first round PRSPs to second round, is there any improvement in the lives of the majority attributed to these?
  • Have governments been able to support the implementation of poverty reduction strategies or are these strategies proving to be a perpetuation of unfulfilling policies?
  • What are the pros and cons of HIPC and the PRSP initiatives in achieving sustainable development of poor countries?  
  • What should be the status of PRSP in Zambia after the HIPC completion point?
  • How can PRSPs and other development programmes be integrated into a comprehensive national development plan?  

Kasote Singogo, who provided a background of the topic and highlighted the key questions to be addressed at the meeting, chaired the round table.

Presentations

1. Jack Zulu, Jubilee Zambia

Being the first presenter, Jack Zulu from Jubilee Zambia  started with a disclaimer that what he was to say may sound like ‘combing the hair already combed’ to some who are familiar with the issues around the HIPC and debt cancellation. He said that HIPC was designed in 1996 to bring the mounted debt of 42 developing nations to sustainable levels, but not to completely remove it. But eight years down the road, ‘king’ HIPC has brought only seven out of 42 countries’ debt to something close to sustainability and therefore needs to be assessed in the right context. 

He said Uganda had reached the HIPC completion point three times in the past, only to be extended each time. Ethiopia has reached the HIPC completion point, but its debt will not be sustainable until after 2020. Zambia may reach its completion point sometime in May or June 2005 but its debt may not become sustainable until 2010. In consequence, consistent failures of HIPC initiative means it is not the best response to the debt issue.

Zulu, though, stated that half a loaf of bread seemed better than none. For example, without the HIPC initiative, Zambia would have been paying US$600mn per year to service its debt. But now, it spends around US$170mn per year instead.

HIPC initiative has also delivered up to US$29bn in the eight years of its existence and is marked to deliver US$24bn in the next few years. Concluding on the issue of HIPC initiative, Zulu stressed that it had failed to respond adequately to the debt problems of poor countries because it relied on export-led growth to calculate debt sustainability, whereas growth, although necessary, has no impact on the poor. He said that growth in itself was a worthless measure, as this may be voiceless growth, futureless growth, jobless growth, etc. He said what was needed was broad-based growth. Besides, the HIPC initiative only opened up the process in which the government contracted new loans without a debt repayment plan.

On the PRSPs, Zulu said that the first two years of implementation were a disaster in terms of political will and donor commitment.Still, there had been a slight improvement in disbursements ( up to 50 percent) towards poverty related programmes.On the other hand, the change of PRSPs to Poverty Reduction Papers (PRPs), which were supposed to be just a component of PRSPs, was also worrying and so were the gaps created by the lack of stakeholder consultation in the Poverty Reduction Growth Facility (PRGF). On the whole, there was a need to sustain the acquired gains.

2. Venkatesh Seshmani, University of Zambia

Carrying the same theme forward, Venkatesh Seshamani, Professor of Economics at the University of Zambia started his presentation by answering the questions forming the basis of the roundtable discussions, as follows:

  • Is HIPC initiative a panacea or old wine in new bottles to debt sustainability or is debt sustainability a myth?  According to Prof. Seshamani, the question was not relevant in the present context. No one had ever said anything about HIPC initiative being a panacea. According to the World Bank, HIPC would make a very little difference on the release of new development financial resources. Yet, as developing countries, we would not be interested in debt sustainability. We would be interested instead in sustainable human development. 
  • Do PRSPs really address the poverty challenge in many countries?  The PRSP is just a better policy initiative than the SAP programme. This is because the SAP programme paper, in referring to issues at the core of poverty tackling, uses only asterisks for sectors such as education, health, etc.
  • As countries move from first round PRSPs to second round, is there any improvement in the lives of the majority attributed to these? What happens to the money that is supposedly disbursed? Is there a significant dent on poverty?
  • What are the pros and cons of HIPC initiative and the PRSP in achieving sustainable development of poor countries?   There are no pros. There are just cons in the HIPC initiative and PRSPs in achieving the sustainable development for poor countries. For example, what would have happened if there was no HIPC initiative in the first place? Would Zambia have managed to pay the US$600mn out of the estimated US$1bn of its budget, or exports every year? The International Financial Institutions (IFIs) and the donors were well aware of this ground reality, and hence proposed this initiative.
  • What should be the status of PRSP in Zambia after HIPC completion? PRSPs have to go on until poverty is eventually eradicated. It may not be in the existing format, but a poverty eradication programme has to exist as part of national planning.

Professor Seshamani further added that mindsets are like rocks on the seashore. The waves, in the form of concepts, have to constantly hit the minds with the same information again and again, knowing that someday they will give way to erosion. He also added that while external debt may be reducing, it was not coincidental that internal debt was getting nearer US$1bn in Zambia. 

3. Professor Oliver Saasa, Premier Consult

Speaking on the theme ‘PRSP and HIPC Completion Point: What should be Known’, Oliver Saasa, International Economic Relations Professor, said the HIPC initiative was designed to ensure that no poor country faces a debt burden that it cannot manage.Nevertheless, due to serious structural problems in the HIPC initiative, a number of serious reviews are currently going on both within the World Bank and outside. The issues, which they look at, include:

  1. The appropriateness to many poor countries of the HIPC debt sustainability criteria has been challenged. Here, the criterion for calculating debt sustainability using exports, which are vulnerable to long-term volatility and subject to the volatile international market prices for primary commodities, is clearly flawed. The problem is further compounded by the ‘rule of thumb’ threshold of 150 percent debt-ratio from a similar initiative in Latin America where socio-economic characteristics are significantly different from many African HIPCs .
  2. To link debt sustainability primarily to export earnings would be to assume that export receipts are primary constraints to debt sustainability, and yet, for many, HIPCs’ debt burdens are more pronounced at the budget level, while export earnings, though important, are quite often very significant in total government revenue.
  3. The narrow definition, of what constitutes sustainability, has ignored the reality that a country can have a ‘sustainable debt’, while the majority of its citizens are wallowing in poverty, hunger and disease, hence ignoring important developmental goals and challenges. There are issues that are the biggest threats to growth and welfare in many HIPCs, such as HIV/AIDS, that are still ‘non-issues’ in the assessment of future debt sustainability.

Thus, according to Professor Saasa, Zambia is only expected to receive the bulk of debt relief assistance under the enhanced HIPC initiative, when, at completion point, it satisfies a number of conditions (as many as 20) and includes the following:

  • Continued commitment of Zambia to the financial and economic programme supported by the IMF’s Poverty Reduction and Growth Facility (PRGF) and the International Development Association’s (IDA) structural adjustment loans.
  • The adoption of a full PRSP to be prepared through a participatory process, and satisfactory progress with implementing and monitoring the PRSP for at least one year, based on an annual report.
  • Implementation of an agreed set of measures in the context of the government’s poverty reduction strategy, particularly in the areas of HIV/AIDS, education, health, expenditure management and control, privatisation (e.g. the privatisation of Zambia National Commercial Bank falls in this category) and poverty reduction.
  • Confirmation of the participation of other creditors in the debt relief operation.

Of the needed point triggers, Zambia has made considerable progress in the following completion point triggers:

  • Commercialisation of Zambia Energy Supply Company (ZESCO);
  • Increasing the discretionary budget share of education to 20.5 percent;
  • The issuance of bidding documents for the privatisation of ZANACO (Still a controversial area); and
  • Implementation of the medium term expenditure framework.

Accordingly, Zambia reached its decision point in December 2000, but its completion point, initially envisaged for the end of 2003, can be only reached by 2005, provided the government successfully adheres to the conditions under the new PRGF arrangement and demonstrates satisfactory implementation of the remaining triggers.

Comments and Questions

 Francis Banda of Organisational Development and Community Management Trust (ODCMT) said that committing the country under HIPC was just a clever way by the so called donors – because they give loans – so that the country impoverishes itself by having to pay within a new framework called the HIPC initiative. He said that what Zambia needed was an indigenously developed strategy as an alternative to foreign-constituted strategies. Besides, the government was playing on the minds of Zambians to think that economic woes would end after the HIPC completion point.

Commenting on this, Professor Seshamani reiterated that the real issue was not the document’s name, but the content and commitment to it by both the government and the international community. He further argued that there was need for the right negotiators, with capacity to analyse all issues given to them.

Professor Saasa said that answers to the problems facing the country should be inward looking and not outward. “We need the right institutions and the requisite personnel at the national level, otherwise we can easily become a country of complainers. What is required are both an aid policy and a debt policy”. He also questioned the wisdom of asking the bank to design the business plan and the debt policy for the country, when it was actually a client of the Bank. According to Prof. Saasa the country was seriously failing to discriminate between good and bad aid. This was also compounded by the failure of political leaders to listen to advice from Zambia-based experts, preferring to listen to the World Bank’s employees and the Fund’s managers, who perhaps may have got the same advice from the Zambian experts. These failures have now shown themselves in the lack of capacity to manage privatised companies.

Another participant, Josephine Muchelemba, asked what the poor could do for themselves under the PRSPs, and questioned that there was hardly any change in the country’s poverty situation after the review of the PRSP.  

Jack Zulu responded that that the right diagnosis had been made, but the myriads of wrong interventions were also an impediment to the poor people graduating from chronic poverty. Professor Seshamani reiterated that poor people had labour as their most potential resource, when properly harnessed.  Yet, there has to be a minimum level of empowerment. During the first and second republic , there were subsidies as a minimum empowerment level which where completely removed. There was also a clear lack of making poverty issues a priority.  He gave, as an example, the excuse given in the economic report for the failure in meeting budget support to poverty reduction efforts as being drought, disaster, etc. But, after calculations, it was realised that taking the drought or the disaster excuses into full consideration, out of the budgeted figure of say Kwacha 450bn, about Kwacha 275bn should have been spent, whereas only Kwacha 125bn were actually spent in 2003. At the same time, there are public offices that are constantly overspending, sometimes by up to 250-500 percent of their budget allocations – clearly showing where priorities of the government lie.

Sajeev Nair of CUTS-ARC wanted to know whether documents like the PRSP should continue in Zambia or it should be integrated into a comprehensive national development plan, so that the various policies governing poverty reduction are brought together for coherence.  He also raised the usefulness of a regional PRSP as being proposed for Common Market for Eastern and Southern Africa (COMESA).

Professor Seshamani said that institutions for poverty eradication were missing, even after years of talking about the poverty situation in the country. There was a need for a new framework of an internal reflection and admission of things that have gone wrong, including a system of what worked and what did not. He said it did not matter what the document for such planning was called, as long as it reflected the issues of critical concern and was acceptable by both, the government and its external partners. He gave the example of Uganda, where the main framework document was called the PEAP (Poverty Eradication Action Plan).

On the issue of COMESA trying to conduct a regional PRSP, Professor Saasa said it was actually a misnomer to call these documents PRSPs. The concept of calling it a paper, rather than a policy guideline or programme plan or strategy, was a bit misleading. He added that a regional assessment of the status of PRSPs in Malawi and Mozambique would help to develop a regional understanding on PRSP and debit issues. 

Sue Mbaya of SARPN wanted to know what were the conditionalities put on developing countries, under the HIPC initiative.

 On another note, Professor Saasa said that although the HIPC initiative had improved the credit worthiness of the countries, it did not provide additional resources for development. 

The roundtable discussion ended with the following as recapitulation points:

  • That there is need to improve capacities, both institutional and human, in order to reduce poverty.
  • The government should be empowered to be able to say ‘no’ to bad aid.
  • The poor are not homogenous, thus the need for minimum empowerment levels.
  • We should elaborate our economic initiative, e.g. some of the poor fall into the category of vulnerable, not viable.
  • There is need to evaluate programmes from an indigenous perspective. 
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