HIPC In Trouble

.. IMF admits it is failing Africa
.. unsustainable levels of debts expected for countries concerned
The International Monetary Fund (IMF) has admitted that one of its key African initiatives for Heavily Indebted Poor Countries (HIPC) is in trouble.

In a working paper published in Washington, two of the IMF's researchers show that its programme to relieve some of Africa's poorest countries of their debt burden may not produce a sustainable economic situation.

The IMF's initiative for HIPC was launched in 1996.

Its aim was simple: to cut the mountain of debts that countries had run up, reducing them to more manageable levels.

At the same time, the programme encouraged states to increase their spending on the poor - on badly needed policies aimed at building schools and paying teachers.

Spending shortfalls

This study looks at the performance of 12 African countries - all of which were heavily indebted before the programme got under way.

These include Mozambique, Tanzania, Ghana and Cameroon - countries chosen to represent a variety of economic conditions.

The problem highlighted by the study is that half the countries sampled are estimated to be unable to raise enough revenue to pay for the spending programmes the IMF is calling for.

"As countries made progress in macroeconomic stabilisation they are now 'allowed' to increase their expenditure to address poverty reduction needs," says the report by Annalisa Fedelino and Alina Kudina.

It gives Tanzania as an example. The country is projected to increase its expenditure level by more than 4% of GDP, to above 22% of Gross Domestic Product (GDP), in 2002/3 relative to the previous fiscal year.

"However, based on our framework, this may result in the country's swinging back into unsustainable debt levels," the report continues.

"Unless HIPCs improve their primary fiscal positions or grant financing is sustained at current, or possibly higher, levels, debt sustainability in HIPCs may prove elusive in the long term," it says.

The authors warn that the countries concerned are likely to move back into unsustainable levels of debt.

Only raising taxes or getting more foreign aid will allow Africa's poorest nations to escape this fate.