Foreign Aid Tour - Karriba Dam [ Biz/ed Virtual Developing Country ]


The Kariba Dam

The History of Aid in Zambia

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Zambia has received foreign aid since the mid-1960s. There was a significant increase in the 1970s and again in the early 1990s in both per capita and on a percentage of GDP basis. This increase was due to the poor performance of the Zambian economy, due in part to the decline in copper prices. The importance of foreign aid during the early 1990s was enormous. In 1992 Overseas Development Assistance amounted to 67% of export earnings and 77% of total public expenditure. About 80% of all Zambia's capital expenditure was financed through foreign aid.

In the 1970s and 1980s most foreign aid was directed to agriculture, education, infrastructure and health. Much of this development assistance came from the World Bank. Up until 1978 Zambia was not entitled to borrow at concessionary rates from the IDA and had to borrow from the IBRD at commercial rates. Since 1984 after a period of borrowing from both the IRBD and the IDA, its multilateral development assistance came from the IDA.

Kariba Dam
Kariba Dam

Zambia also received considerable amount of bilateral aid from Canada, Denmark, Finland, Japan, The Netherlands, Norway, Sweden, the UK and the USA. In the 1970s and 1980s both Multilateral and Bilateral Assistance were largely free of any of the strict conditions of macroeconomic stabilisation and structural adjustment, that were being imposed by the IMF on Zambia in return for loans to support its balance of payments difficulties. Indeed some of these bilateral donors questioned the stringency of the conditions and increased their assistance when the IMF and World Bank imposed conditionality.

However in the 1990s due to the reoccurring balance of payments deficits several donors shifted from project to programme aid where supporting the balance of payments was seen as being more important. The funds were used to either ensure the supply of imports and to repay Zambia's external debt that had grown significantly since the 1970s. Increasingly bilateral donors were also tying their aid to the conditions of good governance, democratic government and human rights. Indeed the majority of Zambia's bilateral donors withheld balance of payments support between 1996 and 1998 because of concern about abuses of democracy. Although programme aid aimed at the balance of payments was being used as a tool for bringing about political and economic change project aid continued.

In the mid 1990s despite considerable debt forgiveness from donors such as the grouping of bilateral donors known as the Paris Club, servicing Zambia's debt accounted for 80% of the balance of payment support that it received from its donors.

In 1999 The Paris Club agreed to write off 67% of the debt and reschedule the remaining 33% on more concessional terms. At present the World Bank is lobbying the bilateral and multilateral donors such as the IMF that Zambia should be given Highly Indebted Poor Country (HIPC) status. This will enable debt reduction on much of its multilateral debt. Why does Zambia not qualify for such status?

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Related Glossary Items:
World Bank
IBRD
International Development Association (IDA)
Official Development Assistance (ODA)
Paris Club
Soft loan
Tied aid
Bilateral aid

Related Theories:
World Bank
Development Assistance Philosophy
Types of Aid