[Zambia] Taps debt relief cash to fight poverty

Reuter South Africa

By Shapi Shacinda

LUSAKA - Zambia showcased the gains of billions of dollars in debt relief on Friday, splashing out on improving agriculture and social services as part of plans to reach United Nations goals of halving poverty by 2015.

Finance Minister Ng'andu Magande said in his budget speech to parliament that Zambia -- one of the major beneficiaries of debt relief under agreements with international lenders -- hoped to have its external debt reduced to about $502 million by July from $7.1 billion at the end of 2004.

"The country will be saving annually about $180 million in debt service. The savings arising from the debt relief under both the HIPC and MDRI will assist the country in its development effort so as to reduce the current levels of poverty by 50 percent by 2015," Magande said.

HIPC is the Highly Indebted Poor Countries Initiative while MDRI is the Multilateral Debt Relief Initiative that aims to help countries to meet the U.N. Development Goals of halving poverty in another 9 years.

Magande put the debt windfall to work, creating a development agency to lead small and medium-scale investment. Companies under the agency would pay 50 percent tax from their total profits while there would be no tax on dividends or customs duties for the first five years of operation, he said.

Magande pledged support further for 150,000 small scale farmers with subsidised pesticides and seed this year to ensure better food production. He also planned three new commercial farming blocs to make food deficits in Zambia history.

"The objective for developing these farm blocs is to make more serviced land available for both large and small-scale farming activities with a view to increasing agricultural production," he said, adding that Zambia would also maintain strategic grains reserves to deal with emergencies.

Analysts said Magande showed what other African countries that have won debt relief could do with the surplus cash in extending economic growth and improving lives of their people.

Magande also warned that debt relief would not lead to government wastage of resources. "Once the debt reform plan has been developed, the government will adopt a prudent new debt policy and strategy that will entail contracting highly concessional loans, where grant resources are inadequate," he said.

Zambia's annual budget is about $3 billion. Magande said some 71 percent of it would be financed locally, showing major gains from a reliance on donors who on average previously funded 40 percent of the state budget in the country which relies heavily on copper for foreign exchange revenues.

Magande forecast the economy would expand 6 percent this year after a slightly lower-than-expected 5.1 percent in 2005 while inflation would be reined in.

He saw inflation at 10 percent this year after 15.9 percent in 2005. He said the budget deficit was expected to decline to 1.6 percent of gross domestic product (GDP) from 1.9 percent in 2005.

"Real GDP is estimated to have grown at 5.1 percent (in 2005) compared to 5.4 percent in 2004. The sources of the growth were construction, manufacturing, wholesale and retail trade and the services sectors," Magande said.