Zim warned against debt trap

By Victoria Ruzvidzo

ZIMBABWE, weighed down by a $5,7 billion debt, should not rush into adopting the Highly Indebted Countries Initiative but should instead pursue other strategies that could yield better results.

Africa Forum and Network on Debt and Development (AFRODAD) representative Ms Ingrid Naess-Holm yesterday warned that although the HIPC strategy had its merits in some instances, its side-effects could outweigh its benefits.

Presenting a paper at a media sensitisation workshop on Zimbabwe’s debt organised by the Zimbabwe Coalition on Debt and Development yesterday, Ms Naess-Holmes said experiences in other countries had shown that the HIPC route would not necessarily rid a country of its debt but could prove more damaging to the economy.

"Zimbabwe should be careful going into the HIPC path. There are problems all the way (if it adopts this strategy.)

"Zimbabwe should find other solutions before adopting HIPC. In fact this country can have a good case to prove that you should not go the HIPC case to try to get creditors to review debts," she said.

Experience had shown that under HIPC creditors did not cancel enough debt, a situation that left intended beneficiaries in worse debt positions.

"Under HIPC debt can actually increase," she said.

Although, by virtue of its high debt to exports ratio of about 150 percent, Zimbabwe could qualify as an HIPC, measures such as mandatory privatisation of state enterprises, adopting an economic adjustment programme and other such pre-requisites could be more harmful to the economy.

Zimcodd director Dakarayi Matanga also expressed this view: "We need to be careful. HIPC in its current form will give problems for Zimbabwe."

Debate has been raging over the strategies Government can employ to get the country out of debt. Finance Minister Tendai Biti has come up with an External Debt Clearance strategy which includes the HIPC as one of the possible routes to take.

Although this he argues out his case, experts say the options needed to be weighed.

In his study launched at the workshop yesterday entitled the Legal Framework of the Public Loan Contraction and Debt Management system in Zimbabwe, Lawyer Zviko Chadambuka also argues that HIPC is not the way to go.

"HIPC has in fact been viewed as having served as a weak bribe-the promise of minimal cancellation after long delay and damaging SAPs (Structural Adjustment Programmes)-so governments would remain in debt system.

"An example justifying this view is that of Tanzania where less than three months after Tanzania received its HIPC debt relief agreement, the World Bank in its CAS was of the view that as long as Tanzania stays on track with its IMF supported adjustment programme, the World Bank intended to lend the government at least US$790 million over the next three years, with a proposal to increase lending in the third year of the CAS by US$200 million . . . this would increase lending over the period to some US$990 million," read the document.

HIPC was launched in 1996 and by 1999 only five countries had made some "progress" under the initiative.

The paper said the World Bank acknowledged that the programme was failing to meet expectations and had to adopt the Enhanced HIPC strategy.

Zimcodd chairperson Rutendo Hadebe also urged caution.

"Let’s think outside HIPC. There are alternatives outside HIPC and we should look at them.

Lets check who we owe, what is legit and what is odious," she said.

Professor Lloyd Sachikonye from the University of Zimbabwe said Zimbabwe could use alternative sources such as migrant remittances to help salvage the economy.

"Zimbabwe’s burden is very heavy. There is need to explore alternative ways of financing to avoid further heavy debts and dependency on foreign aid," he said.

The workshop, which ends today, also stressed the need for a debt audit first before pursuing strategies to get over it.

Zimbabwe owes the International Monetary Fund, the World Bank and the African Development Bank among other multilateral and bi-lateral institutions.

Its present debt has constrained efforts to finance social services such as education and health, with statistics showing that debt repayments annually are 40 times more than the funds budgeted for social sectors.