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Executive Summary
Despite the disadvantage of being land-locked, Zambia was once one of
the wealthiest countries in sub-Saharan Africa. This began to change in
the early 1970s. After the oil crisis (increasing the price of imports) and
relative commodity price collapse (reducing the revenue from exports),
Zambia had to turn to the International Monetary Fund (IMF) and World
Bank for assistance. So began some thirty years of Bank and Fund
intervention in the Zambian economy. In return for loans, Zambia was
required to implement Bank and Fund endorsed economic policies over
three decades. Unfortunately, this period is a sad story of increasing debt,
economic stagnation or collapse, and social crisis.
After the external economic shocks suffered in the early 1970s, Zambia’s
total external debt rose from US$814 million to US$3,244 million by the
end of the decade. The situation then further deteriorated with Zambia’s
external debt more than doubling to US$6,916 million by the end of the
1980s. By the late 1990s the debt crisis in countries such as Zambia led
to the creation of the much vaunted Heavily Indebted Poor Countries
(HIPC) initiative.
Unfortunately, the relief that Zambia is getting under the HIPC initiative is
proving to be inadequate in removing its debt burden. By the start of
2003, Zambia had received only 5 per cent of the debt service reduction
committed to it under HIPC. Even when it has reached completion point,
Zambia’s debt service will continue to rise. As Zambian Finance Minister
Peter Magande has pointed out, “Zambia’s current levels of debt even
after it receives its full quota of debt relief as defined in the decision point
document under HIPC initiative will continue to be unsustainable.”1
Just as worrying as Zambia’s continuing debt crisis is the fact that the
HIPC initiative is being used as another lever with which the IMF and
World Bank can wield influence over Zambia’s economy. In return for debt
relief, Zambia must implement economic policies, such as privatisation
and cuts in public spending, that meet with Bank and Fund approval. The
conditions tied to the HIPC initiative are just the latest in a long line of
‘free market’ policy interventions that have included: trade liberalisation;
investment deregulation; privatisation; cutting or abolishing subsidies; laying-off civil service staff; public sector wage cuts or freezes and
reduced state intervention in the agricultural sector.
Yet a close examination of economic and social indicators suggests the
kind of policies being foisted on Zambia by these institutions over the
past twenty years have been a dismal failure.
For example, trade liberalisation, a key plank of Bank and Fund economic
orthodoxy, has been disastrous for Zambia’s manufacturing sector. Textile
manufacturing has been one sector particularly badly hit. The lowering of
tariffs on textile products, and particularly the removal of all tariffs on
used clothes, led to large increases in imports of cheap, second-hand
clothing from industrialised countries. The Zambian textile industry could
not compete with these imports, and the sector has all but vanished.
There were more than 140 textile manufacturing firms in 1991, but this
had fallen to just eight by 2002. Ramesh Patel, director of SWAPP Ltd
commented, “We used to have factories everywhere, but Ndola is a ghost
town now. We are one of the lucky ones who have managed to survive,
but there’s no comparison. We used to supply retailers with 3.5 thousand
tons of clothing annually; we’re down to less than 500 tons now. We had
250 employees eight years ago; we’re down to 25 now.”2
Agricultural liberalisation has had a similarly poor record. A 2000 World
Bank study acknowledged that the removal of all subsidies on maize and
fertilizer under World Bank/IMF structural adjustment loans led to
“stagnation and regression instead of helping Zambia’s agricultural
sector.”3 And the United Nations Conference on Trade and Development
(UNCTAD) concluded that, in Zambia, “Agricultural credit and marketing
by the private sector turned out to be uneven and unpredictable, and
once market forces had eliminated the implicit subsidies to remote and
small farmers, many farmers were left worse off.”4
Privatisation was one of the strongest features of IMF and World Bank
conditionality from 1992 onwards. But despite attracting praise from the
Bank for the ‘success’ of its privatisation programme, the reality is that
privatisation has had a very mixed record in Zambia. Although some
failing state run enterprises have been transferred into private hands and
are now operating more effectively; post-privatisation, many companies
have collapsed, jobs have been lost and welfare programmes originally
performed through a parastatal have not been continued by private
companies.
The patchy record of past sell-offs has resulted in the one-size-fits-all
privatisation programme being doubted even at the highest levels. In
2003, the Zambian President, Levy Mwanawasa, said, “[The IMF’s
privatisation programme] has been of no significant benefit to the country
… privatisation of crucial state enterprises has led to poverty, asset
stripping and job losses.”5
The real impact of these core IMF and World Bank policies: trade
liberalisation, agricultural liberalisation and privatisation, can clearly be
seen in Zambia’s economic and social performance.
Zambia’s economic record since the oil price shocks of the 1970s has
been woeful. Real GDP per capita fell from US$1455 in 1976 to US$1037
by 1987, an average of –3.6 per cent per year. This decline stabilised or
even reversed from 1987 to 1991, before the economy entered a massive
recession again in 1992, the year an extensive reform programme began.
By 2000, real GDP per capita had fallen to US$892.
The IMF has even failed to achieve one of its core aims for intervention –
to stem temporary balance of payments problems. Statistics from the
United Nations Development Programme (UNDP) suggest that Zambia’s
trade deficit has actually increased through the 1990s. At the start of the
decade the difference between imports and exports was around –5 per
cent of GDP, but since 1994 its range has tended to be between –9 and
–15 per cent.
Not surprisingly, employment has suffered. Formal manufacturing
employment fell from 75,400 in 1991 to 43,320 in 1998. Paid employment
in mining and manufacturing fell from 140,000 in 1991 to 83,000 in 2000.
Paid employment in agriculture fell from 78,000 in 1990 to 50,000 in 2000
and employment in textile manufacturing fell from 34,000 in the early
1990s to 4,000 in 2001.
Economic decline has been mirrored by a social decline. For example, the
proportion of the population classed as undernourished, having a calorie
consumption below their minimum energy requirement, has increased
from 45 per cent in 1990 to 50 per cent in 2001. Without radical change,
it looks increasingly unlikely that Zambia will achieve most of the
Millennium Development Goals (MDGs) by the globally agreed target date
of 2015. In fact, the indicators for eradicating hunger, achieving universal primary education and reducing child mortality are actually in reverse, so,
if current trends continue, these goals will never be met.
Overall, Zambia’s level of human development has been in freefall in
comparison to other countries. In 1990 it was ranked 130 on the UNDP’s
Human Development Index, falling to 163 in 2001. Although very poor in
1990, Zambia was ranked as one of the most developed countries in sub-
Saharan Africa. It is now one of the poorest.
Such a dismal performance has led to widespread dissatisfaction with
Bank and Fund policies. Yet time and again public protest has simply
been ignored while ‘more of the same medicine’ has been prescribed.
This exposes the fundamental lack of democracy in World Bank and IMF
intervention in Zambia.
A recent example of this democratic deficit is the required privatisation of
Zambia’s state electricity company (ZESCO) and state bank (ZNCB) in
return for debt relief. The Government initially agreed to implement these
measures, but the prospect of these privatisations provoked large scale
public resistance. Following a major protest march in Lusaka, the
Zambian Parliament voted for a motion urging the government to rescind
their decision to privatise ZNCB.
Following this opposition the Government decided to reverse its earlier
commitment to sell off these companies. The IMF responded immediately
by announcing that Zambia risked forfeiting US$1 billion in debt relief if it
did not go ahead with the privatisation. IMF resident representative Mark
Ellyne said, “If they [the government] don’t sell, they will not get the
money.”6 The Government was forced to ignore its own Parliament and
go back on its decision not to privatise ZNCB.
Another condition for receiving debt relief has been to curb public
spending. This has forced the Government to abandon plans to provide a
living wage to public sector workers. The IMF will not let the Government
increase its budget deficit from 1.55 per cent to 3 per cent.
By way of comparison, the projected 3 per cent Zambian budget deficit
contrasts with a 2003 US budget deficit of 3.4 per cent (projected to rise
to 4.1 per cent in 2004) and a projected UK budget deficit of 3.4 per cent.
In fact the IMF recently criticised the UK government for planning to
increase its budget deficit to this level, which met with a curt response.
A UK Treasury spokesman said, “We are not going to accept a stability
pact from the IMF, the European Commission or anybody else” and that
the IMF had an “ideological opposition” to public spending.7
Unfortunately, Zambia does not have the same luxury of being able to
ignore the IMF.
Recent criticism of the undemocratic nature of IMF and World Bank
policies has been met – both by these institutions and the UK
government alike – with the response that the Zambian people chose
these policies through their ‘participatory’ Poverty Reduction Strategy
Paper (PRSP) process.
But the incorporation of civil society viewpoints in the final PRSP did not
extend to the macroeconomic policies in the PRSP. Despite its poor
record, the IMF and World Bank were unwilling to backtrack or
renegotiate the macroeconomic framework that had been imposed on
Zambia throughout the 1980s and 90s. The IMF’s existing Poverty
Reduction Growth Facility (PRGF) programme formed the basis of this
aspect of the PRSP, and so in effect overrode any macroeconomic
discussions within the PRSP process. The result was the so-called
‘participatory’ PRSP ‘endorsing’ a predictable mixture of wholesale
privatisation, trade liberalisation and fiscal stringency.
Despite the relatively receptive attitude from civil society regarding the
PRSP process in Zambia, it is still clearly influenced by donors in its
inception and development and by the fact that the Bank and Fund
Boards have the final sign-off to ‘approve’ it. Also, the PRSP is not the
only document that defines conditionality. Zambia cannot access the
HIPC initiative unless its government has negotiated a ‘Decision Point’
document with the IMF and World Bank and has agreed a ‘Letter of
Intent’ for an IMF PRGF programme.
The undemocratic imposition of policies on Zambia has also undermined
its ability to engage effectively in multilateral fora such as the World Trade
Organisation (WTO). As the WTO was being created in 1994 through the
Uruguay Round of the General Agreement on Tariffs and Trade (GATT),
Zambia was already being required to unilaterally reduce its tariff barriers,
rendering meaningless some of the results of the WTO process.
Zambia’s bound rates on goods at the WTO, agreed as part of the
Uruguay round, are all in the range of 35 to 60 per cent. The vast majority are 40 to 45 per cent. Yet the actual tariffs practised since the Bank and
Fund required trade liberalisation in the early 1990s are: 0, 5, 15 and 25
per cent, well below what was negotiated in the WTO. Most of this
liberalisation happened before 1994, and none as part of a multilateral
process. None of the WTO negotiated rates will ever be applied under the
four tariff line system devised with the IMF.
In contrast to industrialised countries, which wait for trade rounds to
reduce their tariffs as part of a multilateral process, the IMF and World
Bank require poor countries such as Zambia to liberalise unilaterally. This
effectively takes away their bargaining chips in any subsequent
negotiations. So there is little point in developed country Ministers – such
as the UK Trade Secretary or the UK Development Secretary – telling
poor countries such as Zambia to make the most of the multilateral
system and stand up for their rights in the WTO when, through the IMF
and World Bank, these same developed countries are unfairly pushing
poor countries into unilateral liberalisation.
In conclusion, while there is no doubt that pre-IMF/World Bank Zambian
economic policy would have had its flaws, and while it is possible to lay
some of the blame for Zambia’s post-IMF/World Bank economic and
social problems at the door of government corruption, there is no
escaping the responsibility the IMF and World Bank, and their political
masters, must shoulder for their interventions.
This report clearly demonstrates that the IMF and World Bank’s
involvement in Zambia has been unsuccessful, undemocratic and unfair.
The evidence suggests that the past twenty years of IMF and World Bank
intervention have exacerbated rather than ameliorated Zambia’s debt
crisis. Ironically, in return for debt relief, Zambia is required to do more of
the same. The country has been condemned to debt.
If the downward spiral is to be broken, and the MDGs are to be achieved,
radical action must be taken. The evidence presented in this report points
to two obvious conclusions. It is time to cancel Zambia’s debt. And it is
time to fundamentally rethink the role of the IMF and World Bank. It is not
acceptable that these institutions have effective control over policymaking
in countries like Zambia. Policies need to be developed which are
genuinely home grown alternatives that put the Zambian people,
especially the poor, first.
The responsibility for this change lies with industrialised country
governments such as the UK. The UK Development Secretary (Hilary
Benn) sits on the Board of the World Bank and the UK Chancellor of the
Exchequer (Gordon Brown) sits on the Board, and Chairs the Finance
Committee, of the IMF. Fundamental change in these institutions can only
come from these political decision-makers. As the holders of power in the
IMF and World Bank, it is the industrialised countries who must take
action if they are to turn their development rhetoric into meaningful
results.
Footnotes:
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The Post. (2003). Zambia’s debt will continue to be unsustainable. The Post, Lusaka. 04/11/03.
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Jeter, J. (2002). The Dumping Ground As Zambia Courts Western Markets, Used Goods Arrive at a Heavy Price. Washington Post Foreign
Service. 22/04/02.
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Deininger, K. and Olinto, P. (2000). Why Liberalization Alone Has Not Improved Agricultural Productivity in Zambia: The Role of Asset
Ownership and Working Capital Constraints. World Bank, Washington, DC.
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UNCTAD. (2002). Economic development in Africa. From Adjustment to poverty reduction: What is new? United Nations Conference on Trade
and Development, Geneva, United Nations, New York and Geneva.
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BBC. (2003). Zambia to re-think privatisation. BBC News on-line. 11/02/03.
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