20 Mar 2009

Zambia: can IMF plug the looming crisis?

ReutersZambia is reckoned to be the 13th poorest country in the world. Sixty-four per cent of the people live in poverty. More than one in six children die before their fifth birthday, and if you live to the age of 42 you are doing better than average.

Britain is the largest bilateral donor to Zambia, providing £40mn a year. But what Britain and the rest of the developed world provide may not be enough to stop an increase in children dying because of the global recession.

This may sound alarmist. “The storm clouds are gathering on the horizon, but they haven’t arrived yet,” was how one British aid worker in Lusaka put it to me yesterday. But there can be little doubt that Zambia is on the front line of a looming economic crisis which is largely not of its making.

The UK’s Department for International Development (DFID) says 45 per cent of Zambia’s children are stunted by lack of basic food needs. Nothing new in that.

Yet Zambia’s ability to trickle down wealth, never that good at the best of times, is declining along with the decline in the country’s national revenue.

And because of the fall in the value of the British pound on world currency exchanges, DFID’s money is buying less aid for Zambia than it was one long and tumultuous year ago.
The Zambians themselves are in denial about the holes in their government accounts, accounts which depend on foreign aid and loans. Lusaka is predicting 5 per cent growth this year, when below 2 per cent may be closer to the mark.

And because Zambia has less money, it won’t be able to build so many roads. Without roads, the economy can’t grow and so fewer people will find work. And without work, they won’t be able to feed themselves.

Anticipating this, Britain increased its aid to Zambia by £3mn this year, but others – the French and Italians among them – are talking of cutting their global aid commitments back. Economic protectionism in Europe, where jobs are being lost, is endangering not just jobs in Africa, but lives as well.    
The situation is already acute. Sixty per cent of Zambians live on $2 or less per day.  And two million people live with the Aids virus. I am told that Zambia’s health sector has half the staff it needs to meet minimum standards and almost a third of rural areas have no trained health workers.
On top of this, some 5,000 Zambian copper miners have lost their jobs in the last six months, after the price of copper on world markets fell 67 per cent last year. That’s because global demand, including that of China, fell. And this in an African country which pays no unemployment benefit and where the idea of a social safety net for the poor is in its infancy.
Copper accounts for 80 per cent of all Zambian exports. Zambia’s crime, if you can call it that, was not diversifying its economy when the good times rolled. The new finance minister made such diversification – and more investment in agriculture – the centrepiece of his budget speech this month, but it has come too late. The IMF says that, because of its dependence on copper, Zambia is “highly vulnerable to the adverse effects associated with the global recession”.
But coming from the IMF, this criticism, however valid, is a bit rich. On Saturday G20 finance ministers – South Africa the only one representing the region – agreed to increase the size of the IMF’s coffers.

What Zambia and other African states want to know is when new money from the IMF or World Bank is going to arrive. As quickly as in Latvia or Iceland on the fringes of rich Europe? Or will the loans be so tied up in bureaucratic red tape that Zambia can expect the usual 18-month wait?

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