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Zambia

Debt statistics 2016

Overall international debt burden (% of GDP)33
Government payments on foreign debt (% of revenue)12.4
Government foreign debt (% of GDP)38
Private foreign debt (% of GDP)9
IMF and World Bank debt cancellation ($ billions)7
Country case studiesYes

Country case study

Zambia was impoverished in the 1980s through large debt payments, falling copper prices and austerity and liberalisation. The debt only fell from 2005 after the country finally qualified for debt relief, but in order to do so, the government had to keep following IMF and World Bank conditions. This included overturning a parliamentary vote against privatising a bank. Debt relief coincided with an increase in the copper price, and thus a recovering economy. But despite the copper wealth, Zambia remains a very unequal country. Debt is gradually increasing again, including through UK government loans for the country to adapt to climate change.

Zambia became one of the world’s most impoverished countries in the world after reckless lending by western banks caused decades of debt and stagnation. Eventually global campaigning secured debt cancellation but not before the country was forced to accept various free market conditions.

In the nineteenth century Zambia was ruled indirectly by the British who pitted different tribes against each other to retain control between 1889 and 1953 leaving a legacy which undermined the chances of development. Zambia was incorporated into the white minority-dominated Federation of Rhodesia in 1953 before gaining independence in 1964. The new country was heavily dependent on copper exports and the economy was further undermined by isolation from its neighbours as a result of supporting independence movements in other parts of Africa and opposing white minority rule in Rhodesia and South Africa.

In the 1970s the price of copper fell whilst the price of oil rose. This meant Zambia had to borrow money to keep the economy running. Zambia’s debt rose from $800 million to $3.2 billion. Most of this money was lent to Zambia by Western banks.

At the end of the 1970s a crisis began when the US started to increase interest rates. It now became almost impossible for Zambia to pay back the loans. The IMF then intervened in 1983, lending Zambia the money to pay back the banks. Western banks were facing a crisis after lending recklessly to countries around the world. The IMF loans were effectively bailing out the banks.

The IMF and World Bank demanded various conditions in exchange for making these loans. These included large cuts in spending on public services, trade liberalisation and privatization. Combined with high debt repayments and falling copper prices, these free market conditions made the Zambian economy shrink for most of the 1980s and 1990s, making it ever harder to pay the debt. For example, removal of trade taxes on used clothes cut government revenue and led to a flood of cheap second hand clothes entering the country from Europe. These put Zambian textile manufacturers out of business, increased employment, and made the country even more dependent on copper. At the same time, privatisation of copper mines cut local services and further reduced government revenue.

By 2004 external debt had reached roughly $7 billion. Due to austerity, ordinary people suffered two decades of falling incomes. This would be hard in any country, but was especially tough for the majority of Zambians whose opportunities to make a living are constantly under threat from droughts, external economic circumstances and diseases like Aids and malaria. Child mortality increased. Life expectancy fell. The number of people living on less than $2 a day increased from 6 million in 1991 (75% of the population) to over 9 million by 2003 (85% of the population.

Thanks to protests and petitions around the globe – including from Jubilee Zambia – it was agreed the world’s poorest countries would get some debt relief through a scheme known as the Heavily Indebted Poor Countries (HIPC) initiative. The debt relief programme undemocratically demanded harmful policies such as privatisation of services and austerity for the countries taking part. One consequence of this in Zambia was that teachers were denied a living wage. When the Zambian parliament voted against an IMF-enforced privatisation of a bank, debt relief was once again delayed.

Throughout the many years it took for Zambia to complete HIPC, debt repayments continued costing between $160 and $250 million per year, more than spending on health and education combined. Zambia finally completed HIPC in April 2005 and had around $4 billion of debt cancelled. Despite this, in November that year drought lead to food shortages affecting over a million people.

Debt relief has freed up a lot of money that was previously earmarked for debt servicing. This has since been used more constructively for education, health and social welfare investments. For example the government began providing free anti-retroviral drugs to 100,000 Zambians in June 2005. User fees for healthcare and primary education, which were introduced as part of ‘austerity’ imposed by the IMF in the early 1990s, could now be dropped for primary schools nationwide and for healthcare in rural areas. Since debt cancellation and with increasing copper prices, Zambia’s economy has grown by an average of 6 per cent a year.

In 1999 vulture fund Donegal International bought a $44 million debt Zambia owed the government of Romania for just $3.2 million. Debts owed to private creditors were not included in the HIPC scheme, even if they originated with a public lender such as the Romanian government.

Donegal pursued the Zambian government for the debt, eventually reaching an agreement that Zambia would pay $16 million of the $44 million. However when Zambia missed a payment Donegal demanded the full $44 million through a British court case. The court refused to sanction an enforcement of payment of the $44 million and criticised Donegal for dishonesty. However Zambia was still made to pay $17.5 million.

The IMF predicts Zambia’s debt payments will triple from $60 million in 2010 to $180 million by 2015. One set of new loans is $60 million from the UK government, via the World Bank, for Zambia to adapt to the impacts of climate change. The Jesuit Centre for Theological Reflection says of the loans: “instead of reparations, the UK is pushing for loans for climate change through the World Bank. Climate loans will only lock our countries into further debt, and further impoverish our people. This will not provide the compensation required to enable people to cope with the impacts we are facing. Loans for climate change are not acceptable.

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