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«2015 Bilateral debt Multilateral 8000 7000 poverty 6000 goals 5000 sustainability 4000 3000 macroeconomic millennium 2000 1000 0 1995 1996 1997 1998 ...»

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1.4 Other Socio-Economic Aspects of Human Development The situation in water and sanitation and in environmental sustainability is less encouraging than the indicative situations in health and education.

The situation in environmental sustainability is disconcerting with environmental degradation having now reached alarming proportions. The country’s forests are under tremendous pressure to provide an expanding population with wood fuel and timber for construction. Land clearance for agriculture and human settlement are encroaching on natural habitats and adversely affecting the country’s rich wild life and bio-diversity.

In the last decade, environmental degradation (particularly through deforestation and wildlife and fish depletion) has become particularly severe and threatens sustainable economic growth and the survival of the poorest in the population. It is therefore no surprise that the MDGs progress report established that the environmental sustainability goal (target #9 of goal number 7) is ‘unlikely’ to be met by Zambia.

In water and sanitation, we look at the water sub-sector only as this is simply for illustrative purposes. Although some progress is being made in the provisioning of safe drinking water, a high proportion of the Zambian population, estimated at 47 percent, has no access to safe water. Significant inequalities are seen between the rural and urban areas (see Table 1.3). The majority of the rural population access their water from lakes/ rivers and unprotected wells.

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Source: CSO 2003a Most observers would probably agree that compared to most other sub-Saharan African (SSA) countries, Zambia is rather well endowed with water resources, accounting for two-fifths of ground water resources in Southern Africa. The Zambian population can draw on these resources for consumptive purposes (particularly in agriculture). Zambia

11 Zambia: Debt Strategies to Meet the Millennium Development Goals

has a diversity of freshwater sources. There is a relatively good amount of rain in a normal rainy season and the country is also endowed with an extensive ground water system, including five major rivers, and several large lakes and many more small ones.

Nevertheless, several deaths each year are caused by unsafe water, poor sanitation and 1 hygiene. For instance, Sinkala et al (2005) report that cholera has remained endemic in Zambia for some time. They show that Zambia experienced widespread cholera epidemics in 1991 (13,154 cases), 1992 (11,659) and 1993 (11,327). Although the Government and its cooperating partners initiated a number of effective anti-cholera programs and strategies from 1998, reducing cholera experiences to the extent that no outbreaks were reported during 2000-2002, epidemic cholera returned to the country at the end of

2003. By early 2004, an estimated 2,529 cholera cases and 128 cholera deaths occurred in Lusaka alone (the case-fatality rate [CFR] implied by the estimations was 5.1%).

Sinkala et al (2005) demonstrate cholera as a food-borne transmission and also show the protective role for hand washing with soap. They underscore the importance of hygiene, clean water and sanitary food handling for cholera prevention. Despite the availability of this information and Zambia’s vast water resources, the country has simply been unable to exploit these aspects to foster better hygiene, water and sanitation outcomes, although the potential exists to do so and achieve the related MDG.

Finally, much in agreement with the MDGs progress report of 2005, in the current circumstances Zambia might or might not achieve half of the human development goals outlined in the MDGs; there is some potential, but achievement of the goals cannot be described as likely. Looking ahead, understanding the costs of Zambia’s human development challenges and the resource requirement to address these challenges is therefore essential for informing the formulation of all future strategies and plans.

1.5 Strategies to Reduce Poverty: the Past and the Present As earlier noted, since Zambia ratified the MDGs as its international human development mission until 2015, it has formulated and implemented three main national poverty strategies. A PRSP was implemented from 2002 to 2004, which overlapped with the TNDP in 2005. In 2006, the country finalized the FNDP, which it launched for implementation in 2007. The achievements, pitfalls, opportunities and risks of the three strategies are briefly considered below.

According to the second PRSP Implementation Progress Report (MOFNP, 2004a), the implementation period of the PRSP saw improvements in funding outlays to priority Poverty Reducing Programs (PRPs) from K140 billion (US$35 million) during January 2002 to June 2003 to K430 million (US$107.5 billion) in the period from July 2003 to June 2004. Major strides were reportedly made in public finance management, particularly budgetary disbursement performance, mainly due to the introduction in 2004 of a Medium Term Expenditure Framework (MTEF) and Activity Based Budgeting (ABB).

12 Zambia: Debt Strategies to Meet the Millennium Development Goals

Despite these positive outturns and the continued economic growth, a number of sectors continued to experience PRSP implementation problems as a result of stretching limited resources across too many projects and sectors. And even though funding to PRPs improved during the implementation period, late disbursements of funds were 1 nonetheless experienced especially in 2003; this adversely affected the execution of some anti-poverty programs. Without appropriate prioritization and political will to allocate resources according to priories, there is the danger that this situation might continue as Zambia implements the FNDP. For instance, looking at the MTEF for 2006-2008 (published in November 2005), it was clear that while some social sectors such as education had been considerably favoured with increased budgetary allocation others such as health were significantly disadvantaged (see, Figure 1.2).

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(2006-2008) data 5 0 2005 2006 2007 2008 The MTEF data showed anti-health allocation biases with shifts of allocations to defence – a lesser priority – to the extent of overtaking the health allocations. This was obviously worrisome given the huge problems in the health sectors, including critical human resource shortages and occasional drug stock-outs. Thus, through extensive lobbying by Zambian civil society (through CSPR) and concerns expressed by donors over increased defence sector allocations, as well as a more open and competitive discussion of budget priorities in the Cabinet (DFID, 2006), social sector allocations in 2006 and 2007 actually increased and defence allocation decreased from the indicative figures published in the MTEF for 2006 (see also Figure 1.3).

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The PRSP came to an end in December 2004 and was succeeded by the TNDP (2002Even though the TNDP was prepared and published in October 2002 and only came into full effect as the national development document in 2005, it reportedly encompassed all the areas in the PRSP and included other aspects such as the Judiciary, law, order, defence and security. Hence there was no implementation conflict when compared with the preceding poverty strategic paper. Indeed, many commentators describe the TNDP as simply an extension of the PRSP. It was originally envisaged that the successor to the TNDP (i.e., the FNDP) would be prepared within the course of 2005, but the process was delayed and the FNDP was finalized a year later in 2006.

It was noted earlier that the improved growth performance of the country since 1999 has had a weak link with poverty, which, it has been said, may ultimately result in insufficient progress towards meeting goal number 1 of the MDGs. Based on this and other observations, the FNDP attempts to focus “on pro-poor growth oriented sectors that will create employment opportunities for the poor” and “emphasizes the creation of strong linkages between the capital intensive sectors and the rest of the economy”.

The latter emphasis stems from the recognition that the mining, construction, energy and trade sectors are expected to continue contributing strongly to overall economic growth.

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2 Costing of Poverty Goals in the FNDP and Costs of MDGs This section looks at the resource requirements and the funding prospects for meeting Zambia’s various poverty related goals and specifically, the MDGs. We therefore begin by looking at the financing estimates in the FNDP and then turn to consider the financing estimates for the human development challenges in the context of the MDGs.

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at both the central and local government level.

External Grants: This refers to development assistance (aid) that shall be provided to Zambia by Cooperating Partners/donors through direct budget support; sector-wide approaches (SWAps); project support; and debt relief. In the past, external assistance came through project support. However, in line with Zambia’s Aid Policy and Strategy, the country has formally moved to direct budget support. The rationale for direct budget 2 support is that this will enhance efficiency and reduce transaction costs for donors and the government alike.

The government’s official view on direct budget support in that this will also strengthen local ownership of the development programs and allow for easier integration of external support into the country’s own development programs as expressed in the FNDP. For funding partners that are not yet ready to channel their support directly to the budget, the government hopes that SWAp will be utilized as the second preferred mode of external support. The government assumes that more external resources will be forthcoming to support the FNDP following international commitments made by the G8 Nations at the Gleneagles Summit in 200515 as well as similar commitments by both bilateral and multilateral donors.

The extent of “national ownership” of the budget under direct budget support and other funding modalities is still at the heart of considerable debate. In part, this is because of the conditionalities that are often tied to poverty reduction budget support, which have the potential to limit fiscal space, even as low income countries are granted debt relief and higher amounts of general budget support or ODA (see, Weeks and McKinley, 2006).

Borrowing: This refers to resources generated through domestic and external loans.

The FNDP asserts that in the case of external loans, the medium to long-term focus is to avoid a return to the high indebtedness of the past. Hence, any new borrowings over the period 2006-2010 will be procured in a manner that does not affect the debt sustainability ratios negatively with the country also continuing to rely on highly concessional loans. It is estimated that during the FNDP period, new borrowing in the region of US$50-60 million annually will be allowed and will mostly be from the World Bank and African Development Bank.

Additionally, the authorities hope to encourage Public-Private Partnerships (PPP) for infrastructure programs. Other likely sources of financing highlighted in the FNDP are regional and international financing initiatives such as the NEPAD Investment Climate Facility and the proposed Africa Enterprise Challenge Fund. Internationally, it is planned that such initiatives as the Infrastructure Consortium under the G8 and the Millennium Challenge Corporation will also be considered, particularly for large 15 At the Gleneagles G8 Summit in 2005, the G8 countries pledged that Official Development Assistance (ODA) will be $50 billion higher by 2010 than is currently the case, with half of the increase being earmarked for Africa.

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investments, which cannot be easily accommodated within the resource envelope. All these financing sources are expected to support the core costs of the FNDP. In terms of the coverage of the core FNDP costs (Table 2.1), these essentially follow the expenditure focus of the FNDP as elaborated in Text Box 2.1.

About 90 percent of the core FNDP costs are focused on infrastructure, agriculture, education, health, water and sanitation, and public order and safety. The core FNDP 2 cost estimates exclude very large capital programs, which are reportedly to be financed through private capital flows, including major projects in the energy sector such as the development of the Kafue Gorge Lower power station at an estimated cost of US$600 million and the Kariba North Bank at a cost of US$300 million. Other projects include rail infrastructure projects in the transportation sector. All these are expected to be financed through private public partnerships or wholly private capital.

It is estimated that core FNDP expenditures will, in absolute terms, increase from a baseline scenario of K59.6 trillion (or US$14.5 billion) to K62.6 trillion (or US$15.2 billion) in the FNDP. Further, the FNDP report shows that the requirement to implement the FNDP programs will result in an expansion in total public expenditure to an annual average of 25.0 percent of GDP from 23.8 percent of GDP in the baseline.

In terms of financing and the resource gap, additional resources – over and above the baseline projections – that are needed to undertake the projected public expenditure during the FNDP period amounts to about 1.2 percent of GDP or K2.98 trillion (or US$0.73 billion). Without giving any specific qualitative or quantitative detail, the final FNDP report highlights that a significant part of this resource gap will have to be met from external grants and loans.

2.2 Sectoral Financing Estimates: Other Observers Given the consideration of the financing requirements entailed in the Zambia national poverty reduction plan, the FNDP, a natural extension of the discussion is to compare these requirements with the financing requirements implied by the country’s commitment to the international agenda on human development. We therefore look at various sectoral MDG financing estimates as encapsulated by various observers.

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