Introduction
Tour Itinerary
Destinations
Lusaka Stn.
COMESA
Central Bank
Zambia's Debt
Problems
IMF-Workings
IMF-Policies
Debt Relief
Debt Effects
Comm. Debt
Issues
Theories
Worksheets
Resources

Home Field Trips Trade Tour The Central Bank of Zambia

The Central Bank of Zambia

The Extent of Zambia's Debt

Next issue - Zambia's Debt Problem? >>

The burden of external debt on Zambia is extremely high. The amount borrowed (the principal), and the interest on debt must be repaid. Many economists, politicians and pressure groups would argue that the burden of these repayments is a significant barrier to economic growth and development. When compared with the level of exports the true impact of the debt becomes more apparent. A country's exports indicate its ability to generate foreign exchange with which to pay off its debt. A total export to debt ratio of 100% would mean that it would require all of its export earnings to pay off its existing debt.

How much does Zambia owe? The total external debt of $6.3bn is equal to $561 for each man, woman and child. This is almost twice the average person's annual income (GNP). By way of comparison, if the UK had accumulated a similar proportion of external debt, each UK citizen would have owed over £46,000 in 2004.

The Extent of Zambia's Debt

Zambia has borrowed money from a number of different sources. The bulk of debt is mainly made up from middle and long term debt. Less than 5% of the total debt is short-term debt having a maturation date of less than one year. Of the middle and long-term debt, borrowing is from three general sources:

• Multilateral borrowing- borrowing from multilateral organisations such as the IMF, the World Bank, the African Development Bank
• Bilateral borrowing- borrowing from governments of individual countries
• Commercial borrowing- borrowing from foreign banks at market rates of interest

The first two provided money to Zambia at concessional rates i.e. lower that at the market rate. These are called soft loans. These represent part of Overseas Development Assistance or Foreign Aid. Commercial loans are made at the market rate and called hard loans.

The middle and long-term nature of the debt means that the burden is not going to be paid off for many years and will thus continue to accumulate and grow. The IMF forecast that, without debt relief, Zambia's debt servicing obligations would have doubled to US $420 million in 2001.This critical situation set the stage for Zambia's entry into the IMF and World Bank's Highly Indebted Poor Countries (HIPC) initiative aimed at bringing poor countries' debt down to 'sustainable' levels.

Next issue - Zambia's Debt Problem? >>

Related Glossary Items:
Soft Loan
Hard Loan
Debt Servicing
Debt Service ratio
Loan Principal

Related Issues:
Debt Relief
The Debt Boomerang
Origins of Commercial Debt

Related Theories:
The Arguments for Foreign Aid
The Arguments Against Foreign Aid