As we begin the 50th Independence Celebrations, we also note the rather unfortunate state of our economy which has for half a century remained with ‘potential’ to grow. The word ‘potential’ has been used in many government policies from KK’s 27 years of a one man show, to the MMD’s 20 years and now the PF’s last three years of gross economic policy mismanagement. Zambia’s potential to ‘grow and create jobs’ remains just that, ‘potential’.
The $600million VAT impasse
The recent impasse regarding the $600million VAT repayment to the mines is a clear manifestation of economic patchwork which has characterized the PF’s economic management approach. We have in past warned about the dangers of disjointed economic management approaches as being practiced by the PF, and now, with the mines’ threat to cut thousands of jobs, we will begin to live the realities of pure economic governance failures.
The most worrying aspect of the recent economic mismanagement is that the PF government has accumulated a huge public debt in the last three years. Some statistics show that the PF led government has borrowed more in three years than the borrowings of the MMD government in its 20 year rule. What is more strange now is the $600million repayment which they could have easily avoided had they not gotten into the practice of economic patchwork through statutory Instruments that had little or no value to the smooth operations of the economy. We have lamented about external excessive borrowing without regard to ability to pay, but now it seems our leaders borrowed only to repay the mines when such would have been easily avoided. It is ironic that we would issue a Eurobond of $750million, holding road shows and popping champagne, and when the money is in, take out $600million to pay the mines, yet, pass on the debt payment burden onto the poor Zambians through taxes, wage freezes and a higher cost of living.
Governance system of tax evaders,by tax evader for tax evaders
The recent revelations of non-payment of taxes by some business close to the power circles reveal one big problem with our governance system: We are in a governance system of tax evaders, by tax evaders for tax evaders. The problem is that a government of tax evaders, by tax evaders and for tax evaders will not take decisions that would hurt the economic interests of the ruling elite and those close to state house. It appears the government is likely to continue borrowing at home and from abroad to finance its expenditure and pass on the burden of inflation and debt servicing randomly to the poor and middle income class, which bears the heavy burden of explicit and implicit taxes. Alas, most of the poor and middles class citizens have failed to challenge the ‘divine right’ of tax dodgers to rule the country. We have on one hand a tabloid that perpetuated poor economic governance through propaganda because it benefitted its elite owners through illegal tax relief, and a government on the other hand that implemented economic patchwork and borrowed excessively without regard to pay. Evidently, the poor and middle classes need to wake up to claim their fundamental rights and install a government that looks after public rather than personal interests. Such a government can be made from a complete overhaul of the current regime, or indeed a new regime altogether.
Poor long term policies
A government that meets its daily expenditure by excessively relying on internal and external borrowing is certainly guilty of economic mismanagement and national dis-service, and is mortgaging the future of our nation, our children, and their future. This cannot certainly be allowed to continue. With a clearly deteriorating debt profile, one question that comes to mind is: why does our government continue to spend more than its revenue when the country is already highly indebted? The answer is that political expediency and lack of regard for long-term national economic interests prompt the political leadership into doing that. Furthermore, propaganda media has done the nation a di-service by being part of, and championing poor economic governance.
It is politically easy to continue to govern, even if badly, without real resource mobilisation effort and effective expenditure control. While mortgaging the future of the country and of the coming generations, the ruling elite also find opportunities to accumulate personal wealth. Those with business and close to the power circles default on tax payments, and life goes on as if all is well. With the passage of time, borrowing, which was used as a solution for resource deficiency, has become part of the problem. The increase in the outstanding debt has begun to claim a rising share of government revenue for debt servicing leaving fewer resources for other government operations. Ill-conceived statutory instruments and patchwork with mining policy has resulted in government having to pay, though legally so, $600million which could and should have been avoided. As a result, a large part of current expenditure and the entire development expenditure are shortly to be financed by even more borrowing. Evidently, a self-centred and short-sighted political leadership has trapped the country in a vicious circle.
Solution
What is the way to break the vicious circle the government is stuck in? Economically, and professionally speaking, the only way out is to undertake tax reforms to expand the tax base and increase tax-to-GDP ratio. Rising tax revenue will reduce the borrowing needs of the government and at the same time improve its debt servicing capacity. Furthermore, a clear, succinct and mutually beneficial mining policy devoid of personal wealth gains interests by those in charge should be championed.
Tax reforms would require that the undertaxed sectors are brought into the direct tax net and those who conceal their incomes to avoid tax payments, or those that fail to pay as required by law such as the propaganda media are compelled to pay their due share of income tax. Furthermore, the PF would do well to de-link itself from businesses that get too close to the governance circles with the hope of getting tax reliefs.
Zambia will outlive all of us, let us not allow its future to be mortgaged by elite interest groups and poor economic governance.
By Hjoe Moono
@Hjoe Moono, what the hell is wrong with that beautiful picture??? I would love to live in such a country. I just go out of urine stinking metro-Subway!!
I think Hjoe you are excited that you are featuring on LT. I give you a moment of silence, ask Field Ruwe, no one mess around with our emotions.
If people thought beyond their next meal,or next house Zambia would be much better off.Zambia is a beautiful country with beautiful people but we need to start thinking ahead. Borrowing money,spending excessively and paying little attention to eduction of our future leaders -the youth will land us as a 5th world country in the next 20 years. Africa will be the next ‘China’ in a couple of decades.We have to start aligning and preparing ourselves.We-Africa have one of the largest population of youth on the planet.Lets invest in them.Government needs to stop mismanging our economy. Seriously if you don’t see sense in the article -we have no hope!
Solution to what? Title is misleading. Sensationalism! Thought it was about foreign ownership of the general economy. met a Zambian bus driver in Tanzania who asked – Why must government just keep money in the bank when we need schools, roads, clinics and hospitals? Clever people know its a waste to keep money in low interest accounts. Money must work, and borrow if you can pay back
In 90s people chilling in the kombons was massive. One would easily find pipo they were looking for at some ntemba. Today Most people work You can’t find them home. There were no traffic jams to talk of in 90s but most can afford used Japanese cars. Accept this “potential” is being fulfilled tho slowly and talk more of how economy can be restructured to benefit more pipo. Now thats masters level…
The country is fine
No mortgage another no story for me
Thanks
Scandal after scandal has helped the government at all. I Thot they got the policies right when they invested the eurobond in the power and transport sectors. No so much in the roads, hospitals and universities. Universities that are too far away from large populations. The railway system should have focused on transportation of copper from mines. The got a few things right and alot of things wrong, it will haunt us soon. Clearly they have a different agenda if they borrowed money that we can generate from tax.
Excellent piece of work!
If the solution is that simple as the final paragraph perhaps Moono can run for president. But why not? Too difficult than writing the occasional essay? I thought so…
Zambia’s total revenue to Gdp ratio is about 21 % and it’s total spending ( budget ) as a ratio to Gdp is 26 % which gives us a fiscal deficit of only 5 %. Technically a fiscal deficit of only 5 % cannot raise alarm on over borrowing but when this figure goes into double digits like the 10 % fiscal deficit seen in Ghana does it raise concern. The other point is that a country does not necessarily need to raise the ratio of the it’s tax revenue to Gdp to cut down on borrowing. All that is needed is to grow the economy like what has been happening in Zambia where the economy has been growing at an average rate of 6.8 %. Focusing on increasing the tax revenue ratio to Gdp could result in over taxing which could discourage business investment and ultimately hamper economic growth.
Mr Moono, be consistent with Chikwandanomics. Yesterday you were praising him as a statesman, today you are condemning his work. Please don’t go on a path of practicing intellectuality of the belly like Prof Francis Chigunta.
You need to differentiate between economic management from party/political management. The problem with you fellas is that you follow blindly, even when things are wrong, just because you like someone’s persoanality you wanna go on supporting them. Chikwandanomics and his handling of his attacks in the media are two different aspects, and must be handled as such: Differently. Who is Francis Chigunta by the way????
Taxation is normal and desirable. The question is how to operate within the parameters that define prudent management of national resources and revenue. Inclusion of defaulters can help but growing the economy using various mechanisms to raise capital, including bonds, stock exchange and robust infrastructure will create the vital space for accelerated and sustained growth.