Kaseba (right), walks side by side with Speaker of the National
Assembly Patrick Matibini, who was also accompanied by his wife Ethel (left) on arrival at Parliament buildings in Lusaka
By Hjoe Moono
Earlier this week the PF government through its MPs in parliament passed a motion that increased government borrowing from the domestic loan threshold of K200 million to K13 billion, representing a 6400% increase!! Yes, 6400% increase in domestic borrowing!! Wow!! Can someone please confirm my calculations, could I be wrong?
If the government therefore borrows at the limit from the banks, the debt would rise as high as 6400% from where it is today. I could not believe this, my simple calculator could not get this right-it gave me an ERROR! Seriously, this is an ECONOMIC MANAGEMENT ERROR!! The economists at Ministry of Finance should have honestly told Ba Chikwanda that there is an error in the calculation! I know there is an Economic Management Division (EMD) at Ministry of Finance, could it have been changed to Economic Management Error, (EME)? No disrespect for my fellow economists there, they are fine economists, but I suspect they must be working under tough instructions & conditions.
Noting that it passed parliament, I cannot agree more with Mr. Sata’s honesty about his MPs, they seem indeed to be as he said: Useless! For if they weren’t, how could they pass a motion with an error? But then, many things have become LESS in Zambia lately besides the MPs: Our hospitals are Nurse-less and our Kwacha is becoming Worth-less by the day.
Back to the 6400% increase in debt threshold, this is clear preparations for economic failure on the part of PF. But to cement their borrowing appetite and crowd out private investment and borrowers, they have increased the minimum bank reserve ratio from 8% to 14%. What this means ladies and gentlemen is that there is now 6% less money (14%-8%=6%) for banks to lend to you and I, period! It means there is less money in the banks for loan, therefore NO more money in your pockets!
[pullquote]Noting that it passed parliament, I cannot agree more with Mr. Sata’s honesty about his MPs, they seem indeed to be as he said: Useless! [/pullquote]
But what is the reserve ratio you may ask? A reserve ratio is a percentage of deposits that banks must keep in their banks to enable them be liquid, i.e, to easily meet the demands of clients through withdrawals etc. So if you have a reserve ratio of 8%, it means that out of all deposits, the bank will keep 8% and lend out 92%. What the PF has done now is to command the banks to lend less to you and me from 92% to 86% by increasing the reserve ratio. So if you had applied for a loan a week ago, expect it to be declined! Sorry!
But you see, while they have reduced money for you and me, they have increased their need to borrow from the same banks. So it’s the pure case of a dad reducing your daily meals from 3 to 1 to that he can increase his from 3 to 5—Mwadya Mweka Daddy reloaded!
But then, the comedy of errors in Mr. Chikwanda’s economics fails him further: While he reduces the borrowing to the public, he still insists on a policy rate to cap interest rates on domestic borrowing, when the demand and supply sermons he gives on a nose diving kwacha will dictate that the interest rates should rise. Soon, expect to hear higher lending rates from the banks and financial institutions.
It seems the septuagenarian Minister of Finance and his colleagues, mostly septuagenarians too, including the president, have absolutely no idea what they are doing. The best we can do is to prepare for the worst: Higher inflation and higher debt coupled with a valueless kwacha.
With the kwacha free falling at Newton’s 10metres per second speed, higher levels of debt, reduced loans and upcoming higher interest rates, ladies and gentlemen, brace for impact! The economy is diving! Brace for negative impact!
PS: A septuagenarian is a person who is between 70 and 79 years old.
Cowdung analysis. Is the PF majority in Parliament? Useless human being and full of hate fya!!!
This PF is failing the economy at a neck breaking speed. Chikwanda, you need to reconsider your fitness for this job.
Obviuously, this article is a THICK BOOK to you way longer than an SMS you are used to. These are the typical PF kaponyas from matero university or Kulima Tower School of economics. My question is what is flawed about what the author has written?
Are you serious about the parliament numbers and do you even know why your PF govt has the biggest, most bloated cabinet ever to grace the land of our country with two PSs and 2 or even 3 deputy ministers in some cases? Do you understand those dynamics? Do you ? Do you? Please just go and man your bus station or tutembas if you have nothing to contribute. This is a serious issue that could affect even our great grat grand children and give it the seriousness it deserves.
Chabwera, this is cowdung response you should be ashamed of. A young economist raises profound issues and all you can do is to lick the tail end of a bovine’s entrail outputs for a response?!
Yes, dont you know that pf are in majority you moron,on which side do you think those borrowed mps like monde&co are?Whatask do you expect from uselees mps? ask Chumbu Chimbwi.
Chabwera, you are just shallow or a kaponya who can just blog. It is you who is useless because you cannot understand analysis of Hjoe Moono. Moono, continue to hammer these kaponyas, looters and raiders. Moono You are great.
@Chabwera!
How dare you say that! Only a mother fu.cker like you who doesnt even understand economics would ignore such glaringly truthful facts! The truth only hurts fools like you which is why you are exposing your inborn st.pi.dity!
When the hunger and cost of living begins to bite even you and your stupid Grandmother that gave birth to your equaly stu.pid mother will not be spared!
I for one do not worry much about the borrowing aspect of things, but the use of the money borrowed. So far all the moneys borrowed by PF has not been put to good use as can be proved by the rampant abandonment of construction projects started by MMD and those launched by Sata and his PF on the hoof to solicit for votes during by elections. Two years has gone now , can some one show me which project launched by Sata is half complete?
€750 million bond money has all gone to waste through rampant PF corrupt schemes mean’t to divert all that money into their pockets at the expense of the poor tax payer. The only use of this money I have seen is on the employment of casual workers tiding the rail line.
My worry is that all K13billion will disappear into top PF mafias without…
Debt, poisonous on eating, PF’s wage bill
World Bank and IMF (2001),” the rise in the domestic interest rates is more pronounced if the investor base for domestic debt is relatively narrow” like the case is for Zambia
Interest payments consume a significant part of government revenue and attracts higher interest rates.In poorly developed financial markets, the interest cost on domestic debt increases with the debt stock as a large proportion of the debt is held in short term instruments.
“Domestic interest payments for Sub-African countries increased from 49.7% between 1990 and1994 to 51.9% between 1995 and2000”, Christensen (2005)
Sata’s Zambia is headed for a debt burden onto our people and their children’s children!Truly Sata is not worthy of a patriot, these are mafias and pure…
You are really a retard. This guy Moono has tried his best to simplify stuff in his article, and yet PF retards like this guy fail to pick even one point.
Great piece my friend. This is really a no brainer. As MMD we worked extremely hard to reduce domestic borrowing and this might seem like no big deal to most myopic PF kaponyas, but can you recall that under MMD, there was a time when Banks started begging people to get loans for cars, houses and business financing. That was not magic or luck. That happened because banks had to make money and the game of just buying treasurely bills from Govt was no longer in town. They had to now take risk and work for their money.
But guess what, we have just been taken 20 years backward. Banks are smilling, the treasurely bill game is back in town again and why should Banks risk their money on small businesses and individuals?
This is jaw dropping stuff. God help us please.
Not to detract from the issues brought out in the article but as a matter of principle perhaps we should all check what the level of domestic borrowing was before the passing of this latest SI and the level its actually at now. We might find that Govt has been borrowing outside of the limits for a few yrs now
Writing useless articles based on no research but pure biase wont help Zambia develop, I wonder why LT gives these articles a podium. Google the following paper and read it, used it in my Phd research. it will help your ignorance;
Domestic Debt and its Impact on the Economy – The Case of Kenya
Isaya Maana,
Raphael Owino and Nahashon Mutai
June 2008
Please do not abuse research it has its own place. One needs not research to come to a conclusion a straight forward matter like this one. For example if the price of fuel goes up by 30 %, it is not rocket science that the price of transportation will go up by 20 – 50% and so will be the cost of doing business and life. Please spare us that line of thinking, that one needs research to predict the inevitable.
what will you benefit if things got worse to the point wer this guy is hoping for? I do not totaly agree that government shuold increase local borowing at once…but its a ten year period that this increament applies to and given inflation and GDP growth, the effective impact is not as exergerated here by taking a mare percentage. bring something solid to defend your point and dont just argue. Because it seems with some people anything done under PF is bad, I heard a blogger even condenming the burning of infected Pigs as ‘babaric’, when the government is simply preventing waste going into your mouth… The fact is if things in this counrty turn out bad no one benefits. we all lose out. why dont we focus our attention on assisting government with wat can work?
Good morning @Matrix. Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. But, when it is used imprudently and in excess, the result can be disaster.
1.When government debt grows, private investment shrinks, lowering future growth and future wages. http://www.heritage.org/research/reports/2013/02/how-a-high-national-debt-impacts-the-economy. 2. Gross Domestic Product (GDP) has a negative relationship with the ratio of development stock to total domestic debt (SDD). http://www.grossarchive.com/projects3.php?PROJECTID=ECO0004 3. additional borrowing, in turn, increases future interest payments owed by the government. 4. Government borrowing is argued to have the effect of raising interest rates—the “crowding-out effect.”
Domestic Debt and its Impact on the Economy – The Case of Kenya1
Isaya Maana Raphael Owino Nahashon Mutai Central Bank of Kenya MEFMI2 Central Bank of Kenya
Abstract
This study analyses the development in public domestic debt in Kenya and its impact on the economy for the period 1996 to 2007, and provides recommendations on how to improve domestic debt management in Kenya. The study finds that the composition of Kenya’s public debt has shifted in favour of domestic debt while considerable progress has been made in extending the maturity profile of the debt, and diversification of the investor base towards institutional investors and individuals. The significant rise in domestic debt during the period resulted in higher domestic interest payments which present a significant burden to the
@The Matrix; you seem to be addressing the best case scenario; accruing that debt sealing over a ten year period. From the borrowing that the PF has accumulated over the two and half years, it wont take half that time frame to exhaust that limit. These decisions are political and not economic. The only way PF feels they can come back in 2016 is by borrowing heavily and fund roads, universities, clinics etc. Try and convince people that they are a working govt and hope that will mask the corruption and debt and hope that the economy is still growing and start paying back in their second term. This is speculation and not sound economics.
Matrix you can’t even summarize what that paper says when you claim you used it in your PhD- Kulima Tower PhD I guess.
You have to look at it froim a ten year debt repayement period. The net present value is positive. the only problem is when this money is not properly used. and the risk of higher intrest rates depending on how the borrowing is done. The reason I always say if you have studied economics, study finance as well because economics is too theoretical. i agree with the risks youv pointed out, but given the fiscal position of the government , they would be in a crisis if they dont extend the borowing ther is no way . the ryt thing to do would be cut all salaries and expenditure and i can assure you the people condemning would be in the streets throwing stones and wanting ther pay reinstated. the reason why governments tend to borow localy in these desparate situations is simple:
the USA government whose currency is a reserve currency borows localyy.. you ask me how? its simple it all starts with two opposing polisiticians saying ‘ vote for me and i promise my government will provide more free stuff than my opponent’. this means thel have to bororow , so the usa isues treasury bonds, the banks bid for the bonds, the bank later holds and open market operations. then takes the treasury bills to the federal reserve bank, the federal reserve ban at that point is a zero bank account, but the federal reserve still writes a check against a zero acount and issues to the banks the bansk then go and buy more bonds..this equivalent of borrowing locally via monetizing debt.this is easy borowed money leveraged against the tax payers with a higher intrest because of low risk
I think you’ll find that Kenya, while a good marker as to where we should be, is a bad comparison because at face value (at least) theirs is a much better managed and more diverse capitalist economy with a deeper financial market than ours
Any facts that Kenya is more diversified?
What a stupid comparison from THE WHOLE fool of A MATRIX! This is Zambia and not Kenya! If Kenya had problems of their own, does it mean that Zambia should go through those problems too? Besides Kenya has moved on and is even far ahead of Zambia economically!
And since Kenya has enacted a new Constitution to address the issues they had in the past, is there any good reason why PF Psychophants like you dont want a better constitution for Zambia! Eat SH.IT man!
The intricacies of monetary and fiscal economics cannot receive a fair and exhaustive treatment through a blog like this one.Perhaps its a reason @ matrix is trying hard to compress such a complex subject into a few sentences.Am surprised that the author even found time and space to write about nurses,Newton and the elderly.I would have liked Mr.Moono to give us a statistical expose of just how he came up with his headline.e.g.his prognoses on rates of GDP,inflation,foreign currency in-flows and interest rates in both the medium and long term.In addition I would have liked him to tell us who are the borrowers from commercial banks currently and what-according to him- the Government intends to spend these borrowed funds on.
Let maths do the economic talk and not exclamation marks.
Ha ha ha ha… please spare us your Ph.D. thing. You do not need to be a rocket scientist to realize that Kenya is very different from Zambia in population size, economic output and let alone GDP. Nairobi alone is bigger than Ndola and Lusaka combined
If that is all you Ph.D. folks can do, i.e. relying on one publication to draw inferences across diametrically different objects, I shudder to think the damage Ph.Ds like you have done to us mere mortals.
I thought you would post a better article.
Some alarming news. But just for clarity isn’t this “borrowing” from the BOZ and not from commercial banks? Also at some point down the line won’t we citizens have to pay for it. I can’t imagine what sort of tax structute could cover that much debt and we don’t have a broad enough tax base as it is.
Borrow from BOZ? Since when? Or are you telling us that your PF will start running the printing press now and flood the economy with useless Kwacha? You PF people are really an ignorant lot!
Borrow from BOZ. That cracked my ribs. Govt borrowing from itself
GRZ will not borrow from BOZ but actually use it to borrow from commercial banks and the public through Treasury Bills and Govt Bonds..
You have really cracked my ribs
Brilliant article man! Keep it up!
God help us.
Ba chikanda is driving the national economy crazy.
Septuagenarians? Why not just say the elderly? Am sure there must be octogenarians in government as well. Anyway, pure gibberish if you ask me.
Now back to your paper…who can borrow from the banks today at their current interest rates? Aren’t the interest rates still just as crazy? Our people escaped the wrath of the credit crunch because they don’t borrow as much from these crooked banker as those on the West. Yet in your head, you think if people borrow, it amounts to more money in their pockets! You seem to give me an awful impression of an impromptu economist with no idea what he is speculating about. Raising the borrowing thresholds (Which opposition voted for as well) has nothing to do with your scare-mongering paper here.
Boss,do you really have a brain?
@ngobloa
If you are not worried about the PF ‘s current borrowing trends in order to fatten their bank accounts as is the case at the moment, there should be something wrong with your thinking nowadays.
To me any amount of borrowing is ok as long as the money borrowed is well spent on projects which will lead to sustainable high quality employment through creation of manufacturing industries. For example if the money is spent on construction projects which require that all materials and equipment used is sourced from local industries. If such industries are non existent then invite the local entrepreneurs to start up manufacturing with guaranteed orders from the government projects. It is through such initiatives that the Western world has developed their high tech industries for…
As things stand at the moment, this rampant borrowing by PF under the guise of construction projects, is just pure consumption without any long term benefits to the Zambian economy. In other words its is consumption oriented borrowing to support foreign economies which supply us with contractors , materials and equipment for these projects.
To make matters worse this rampant borrowing is a scheme to enrich Sata and family forest through RDA run from one his spare bedrooms at state house.
Already more than $3.5 billion has been spent by Sata and his PF for which there is totally nothing to show for it apart from deceptive rhetoric.
Zambians if sit back and relax, things in our country are just gonna get worse, and our Kwacha will be as good as tissue paper by 2016.
PF kuya…
Can you please explain what you have said in simple language so that a grade seven drop out like me can understand.
I guess you are also a Ph.D. student like the other blogger “The Matrix”. The essence of writing is to communicate, simple!
Actually the author of this article is not necessarily complaing about domestic borrowing. The problem is the 6400% increase in the limit the government can borrow. Given that the PF government thinks simply borrowing= development, in a few years we will end up with debt worse than during the Kaunda Govt. And this is the problem.
U are absolutely right – this is typical dead-end or cul-de-sac myopic economics on the part of the government ! not even the metaphorical mwadya mweka Daddy example offers solace for the kaponya bloggers. U never CHANGE a winning strategy and MMD and sober-thinking zambians definitely soaked in LPM-economics as the way to our economic promised land…then came the Thievery Corporation…we are in maningi trouble and thank god the opposition are finally back-footing it on Parliament Hill – its gonna be a long walk to freedom if we relent – Go Zambia, Go !!
This is a wonderful discussion and credit to the author for stimulating our minds. With regards to government increasing the borrowing threshold, my two cents here is that in the immediate term, this policy does two things first, provide confidence to government contractors and workers that the government will not default on their obligations and second give the government muscle to increase spending particularly on infrastructure programs. This is important for an economy like Zambia that is on a path to modernization simply because in the absence of foreign Direct Investment or a robust private sector to boost infrastructure development, the government is unfortunately shorthanded and is better served by adopting the Keynesian economic model as a means to achieve the development goals.
@Buzzed: Yours is the only mature and sensible comment on this topic so far!!!
PF is deadly deaf and must be removed immediately before its too much.
Now let us do some “Can you remember” or simply an assessment of General knowledge skills.
1. Why has Mr Chikwanda and PF opted to go for domestic borrowing?
2. Are commercial banks the winners in all this?
3. Has Mr Chikwanda lost out on his commissions when getting loans externally?
4. In which banks does Mr Chikwanda hold shares?
5. Does Mr Chikwanda or PF have friends who own banks in Zambia?
I await your correct answers.
Finally one shines a spot-light into the veil of darkness and behold all must NOW surely overstand !!
Ngobola well said,why are we treating this borrowing threshold an issue as if all of you have the capacity to borrow and we are getting this money from banks for free.Lets learn to save bane and this government is doing all this in the best interest of the indigenous Zambian.These leaders are our fathers and grandfathers to some of us they may not be soo educated but they have the much experience to lead this country to were it should be.The problem with all of us Zambians is that we are used to the chiluba mentality of spending what we have and steal some more to maintain our living status.
if you do not understand basic economics shut up!
USA has a huge debt and is a super power. you guys talk too much driving your cars bought using borrowed money. Which business never writes a business plan and then gets a loan for running capital? We need money for more infrastructure.
WE want to develop PLURALLY and WITHIN our means, MINIMAL RISK and we don’t give an eff about becoming a “sovereign military bully”( aka superpower )..be sensible or leave the chat mate!!
We borrowed 750milliom Euros and what have we achieved from it? Can we pin down the actual beneficiary projects/ infrastructure of that money? Again people, we are not against borrowing perse, we are against reckless borrowing without a plan like what the PF is doing. Everything under PF is confused and not transparent. Even KK borrowed with a real plan to put up specific infrastructure. For PF, loans are also meant for consumption. Also the increase in the limit is just recless. A prudent Govt can increase the limit by 100% or 200%, not 6400%. The plan is because they can’t plan and manage anything, they therefore need to have unlimited money to pump into every sector that coughs (I want money!) so that they can continue ruling. But that is not sustainable and will fail ultimately.
Not long ago, the Vice President was boasting that bank lending rates would soon be below 5% (……..for some reason never minding the fact this would be negative interest since inflation is still officially somewhere around 7%).
Perhaps a member of the PF brain trust can tell us how that part the “plan” is going?
I love the MMD they were level headed with a lot of experienced leaders MMD for 2016.
I was a true follower of Sata, now am beginning to doubt my position. Yes the economy is nose diving at high speed like a hijacked plane. If the velocity is high its difficult to control the plane same with such an inflation. Gentlemen, its not politics but reality- Zambians need political and economical revolution, let wind of change sweep across zambia
What is happening is that they need an unlimited source of money to buy the whole country if need be so they continue ruling. If this fails, all the same they will have sold Zambia to their friends who own banks and, whichever Govt comes into power will be at the mercy of these banks. This means in practical terms that no matter how good a government can be that will take over, it will just be impossible to pay back this domestic debt, let alone develop Zambia. Zambia will forever be under their control. This is a serious scheme people are not seeing. There is no justification of increasing the borrowing threshold by 6400% as if we are in a Zimbabwe situation or a war situation that would warranty such an increase. It is simply unrealistic, unsustainable and suspicious. There is a master…
plan behind it. Very soon you will see projects mushrooming up everywhere from this nkongole until 2016. If it happens that they are given a second term, everything will stall down there after and they will now start talking about debt burden and obligations- paying themselves behind banks they will own through their friends. If it happens that they are booted out in 2016, they will still control whichever Govt comes in power through the banks. We are permanently welded under the Bwinjimfumu Cartel. This whole thing is fashioned from the US Government- Big Business model where there are powerful banks and individuals controlling who goes to Washington. Our friends haven’t been sleeping and then our MPs are taking things lightly by allowing that bill to go through. Smell the coffee? Mark…
my words, this is no fantasy. The earlier we Zambians can wake up and reject this increase, the better for us and our future generations.
only dull pf cadres will will find a fault in this article, because you *****ic mofos are poor and dull compound reject mentality, destined for poverty you want everybody to join you in poverty it wont happen you ll remain poor and we ll remain rich and laugh at you wonder why chikwanada comes back in all governments and destroys the zambian economy find answers to these question then you ll know why you are poor always ***** pf cadre
Mwanawasa govt completely stopped borrowing from the banks. During his presidency, the govt had enough revenue to meet expenditure. Banks started following people in their homes through sms to go and borrow money. With the current govt borrowing from banks, the people of Zambia should forget about borrowing from the same banks. If they do it will be at at very high cost of borrowing
increasing the borrowing doesnot give you a blank cheque to borrow its simply gives you enough space to manage shorterm as you do your omo and fiscal policy thru Boz window and ZRA espectively It helps to deepen the Financial sector of the local country and help to cement to manage the risks that comes with borrowing across syndications and through the weight to participating local banks and other financial institutions to improve on efficiencies rather than doing the euro dollar transactions Its a local requirement then if not filled then think of foreign especially with lack of fully fledged treasury system that relies on local professional goodwill Use it wisely with ZRA and BOZ
Economics outlooks are not cast in the stone you unliver and liver accordingly having a longterm perspective in accordance with your Plans and targets indicators in the individual sectors and the economy Sometimes deepening the economy and the Financial services locally might be good both for the private and the participating financial services at large
You have the treasury window and the bond auctioning to tap in and position accordingly with the balance sheet nicely understood hedging the local kwacha and the same time not stifling to increase cost of borrowing for local Its about Deeping the liquidity of Cairo road and participants helping to develop some efficiencies
Feds and Britons use local…
its like you see the economy moving from its course You step in instill confidence and remove speculative hits and retrace the economy back to the desired and projected indicators cementing the long-term in gains and strides understanding the fundamentals pinning and working shorterm to correct long-term using refined and well researched and timely interventions
Outlooks are good if well researched and factually and help you honestly see yourself and position to address adverse effects correctly Its not like a straight jacket and cannot be tailored to the individual circumstances overnight or forthwith
It is surprising to find that what the young man has written can be vehemently rubbished.fellow bloggers,the pf thought things were just by a tick then they happen.90% of Ministers in pf did not work anywhere where critical decision making would be involved.name one before u expect manna from them.Economic dynamics and its implications are too difficult and complicated to comprehend.
PF is useless, they encouarage investors to come and invest and yet they raise the minimum capital reqirement for foreign banks to K540 million (rebased). In 2011 and below banks had the same capital requirement and we saw an increase in banks with the introducation of FNB, Eco and UBA which increased jobs for people, if banks fail to maintain this amount they will have to close. NO JOBS! NO MONEY! MORE PROBLEMS. Great paper Hjoe Moono, you have a brain that think.
SOME PEOPLE WITH CAGED MIND CANT UNDERSTAND WHY THE KWACHA IS FALLING ? THE KWACHA HAS EVEN DONE FAR MUCH BETTER THEN MOST CURRENCIES IN AFRICA LIKE BOTSWANA PULA, SOUTH AFRICAN RAND, GHANA CIDI ETC
The problem with Sata and his PF is basic. They are a bunch clueless individuals who don’t know where they are going or what thy doing , and so they just wake up and make decisions. I really pity our country. By the time Sata is, Zambia will be 50 years backward.