By Hjoe Moono
PF’s Haphazard economic management
The recent persistent negative trends in the economy as being reported by economic agents within and outside Zambia raise much concern and one cannot avoid the temptation of commenting on the responses being given by our government. We may agree that perhaps, just perhaps, the present government may be serious about resolving the daunting economic problems of the country, but is unlikely to achieve positive results because of its piecemeal and disorganised approach to economic management.
[pullquote]We are not going to get any richer by borrowing more from others in the world just so that we can buy the things they make[/pullquote]
The PF government is looking at each problem facing the country in isolation from others without completely grasping the interlinks in economic policies, and without taking into account the side effects on other areas.This is evident from the recent attempts to make the kwacha strong. It is not clear where such seemingly disjointed policies are coming from, or why there doesn’t seem to be a robust economic management team to coordinate these measures effectively. Perhaps it could be partly due to the fact that most of the economic policy advice our leader is getting is taken from nonprofessional bureaucrats, administrators and vested interest groups or individuals from either the public sector, or indeed the private sector who seem to have no grasp of, or interest in, macroeconomic linkages of the Zambian economy.
Recent blunder by BOZ
The BOZ recently announced offloading $178 million from its reserves on the market to help stabilise the kwacha. However, the kwacha seemed to have performed even worse than before. Why? They forgot the most important rule of effective monetary policy:
“Only unanticipated monetary policy will have any effect on the money market”
As long as BOZ announces its market moves, economic agents—Banks, Bureaus, Traders, etc., will form expectations and adjust their activities in anticipation of the policy, hence when effected, will be ineffective.
Let us be clear that a government that follows inconsistent policies cannot achieve consistent economic results.
There have been a lot of inconsistencies and disorganisation in economic policy which has led our economy on its current unattractive path. I will give a few examples to make the point that the individual policy solutions adopted to address a particular problem may aggravate the macro situation if policy interlinks are not fully understood and taken into account.
Addressing Railway infrastructure and loadshedding
truck rehabilitation programme in Livingstone
1.The government is rightly focussed on addressing the loadshedding problem as well as the railways transport system on a priority basis but this is being done without giving due consideration to the implications of a particular solution for other problems faced by the country. The poor state of rail infrastructure and years of under-investment in the sector, coupled with increased truck haulage competition on our roads were some of the factors for below-capacity utilisation of the rail-network. The step taken to ‘improve’ infrastructure in Zambia Railways after taking it under government control with borrowed funds from the Euro Bond is indeed a joke. The amount being spent on rehabilitation with the borrowed funds is a small drop in the ocean, and it will be harder to find any value addition in wasting the Euro Bond in laying new sleepers than it will be in finding the missing MH 370 missing plane. What was required in Zambia Railways was a Public Private Partnership with a serious private investor.In which government would enter into a win-win agreement, like was done with the Gautrain Underground tube train in South Africa. A private partner would bring in the required capital at sufficient levels as well as expertise to manage the venture. This would relieve government of financing the infrastructure through debt. Just like in the power generation process, continued government borrowing from the domestic banking system and international market may or may not help reduce the periods of loadshedding but it will certainly increase the debt situation and add to inflationary-pressures.
The Path ahead due to continued domestic and foreign borrowing
On continued borrowing, both domestic and foreign, let us be true to ourselves dearly:
We are not going to get any richer by borrowing more from others in the world just so that we can buy the things they make. We have to earn our own way in the world, by making our country, Zambia, more attractive to overseas investment, better educating our workforces, and providing a climate in which our businesses are able to produce goods and services of sufficient quality that the rest of the world wants to buy them. COMESA & SADC offer a ready market for our produce, for once, let us see the value of our belonging.
Our government, the PF, has to live within its means, and not pile up deficits and debts that will burden future generations with the taxes to pay for them. We have to reduce entitlements and drive value for money through government, so we can focus public spending on areas likely to enhance our productivity such as education & health care. That said, those fired nurses must be reinstated-we cannot afford the luxury of inadequate staff in our hospitals due to deliberate policy.
If the government is serious about improving access to SMEs, more credit availability to the private sector without a sharp reduction in government borrowing would explode money supply, increase inflation and contribute to a further sharper downward slide of the exchange rate. If the exchange rate continues to depreciate because of excess liquidity in the economy reflecting excessive government borrowing, the country will get trapped in a vicious circle of more debt serving liabilities and more government borrowing. This seems to be the path ahead of us with the recent record limit to government borrowing.
Budget
Lubuto secondary school in Ndola sells pillows on Tuesday in Solwezi
to pay for his school fees. The economic boom due to increased mining activities has been attracting a lot of people in the area.
In our budgetary area, to meet a large development expenditure – in addition to rising debt servicing and high infrastructure and by-election spending – the government may decide to rely much more than before on foreign and domestic borrowing. This short-sighted solution of the scarcity of revenue resources in relation to public sector expenditure requirements will push the country further into a debt trap and increase the inflationary pressures.
While there is nothing wrong with building infrastructure and even engaging in prestigious projects with sweet code names being commissioned every day, such as the ‘Mongu Stadium’—on paper, or Paul Mushindo University—under construction, these ought to be done within the budgetary constraints. Given the low tax-to-GDP ratio, such projects collide directly with more allocations for water, sanitation and health facilities for the large underprivileged population who are the majority. It is particularly annoying when the government is unable to introduce major tax reforms (e.g. windfall tax, etc.) that would bring into the tax network the vested interest groups of industrialists such as the mines. The government’s reliance on taxation using the convenience of tax collection as a criterion for taxation, and resorting to excessive borrowing will hurt domestic financial saving and at the same time aggravate the income inequalities and increase poverty.
In the absence of a macroeconomic framework that meets the test of consistency and takes into account policy inter-relationships, the pursuit of a piecemeal approach to policy formulation is likely to end up in a bigger economic mess than we are currently experiencing.
That said, the three most potent instruments of macroeconomic policy framework are fiscal, monetary and exchange rate policies. Those need to be interlinked on a consistent and professional basis and not through scattered administrative and politically motivated decisions. The macroeconomic policy framework should dictate individual economic policies rather than scattered and stand-alone economic policy decisions determining the macroeconomic outcome.
So, finally, as long as the PF government continues to look at each problem in a stand-alone manner and seeks out quick patchy fixes while avoiding structural policy reforms, the overall state of the economy is bound to continue to deteriorate even in the context of partial success in addressing some problems here and there.
Thanks Hjoe for the breakdown. Hopeful that someone is listening and hence forth structural policy will be used as a cornerstone managing our economy. Not only now but by all future governments of our beloved Zambia.
I now believe RB is an Economist. Nomba ba Ukwa – just senseless cabinet reshuffles.
Its pretty obvious that the economic policy advisors are not qualified for the job.How embarrassing that Michael Gondwe announced the offloading of $178million onto the market and thereby only forewarned traders leading to worsening of Kwacha performance…..PF should learn to consult. Caleb Fundanga though he served in MMD government would have aptly advised them…I’m sure he has more allegiance to the country than whatever party was in govt when he served as BOZ director
As the MoFNP gives his address on the state of the economy, he must take into account that:
a. whilst he can borrow (print money) = increase in Kwacha
b. he has no ability to earn foreign exchange = incapacity
c. Therefore when the private sector does not earn enough foreign exchange or does not bring back all the foreign exchange earned = low supply of foreign exchange.
Since a > c = increased price of b (foreign exchange) or falling Kwacha, now $ = K6.5 or more
Solution:
1. No more printing money
2. Increase conducive business atmosphere.
Imwe ****what do you want our President to do kanshi? Everyday mumaponto bushe is our Kateka an ecoonomist to contollola the economics? If fyapena ninshi fya pena period just work hard. Leave my kateka alone can you see) and mMD are corrupt and we are processing them. *****
The problem iye chumbu munono is that Zambia is being ruled by ne shilu. Thats why ifinti fipenene ifi.
All he knows is to hire and fire, appoint and disappoint, swear -in and swear-out, etc…
Iwe PF for LIFE, you must start thinking if you can ever think! Your President is everyone’s president. He needs to provide leadership even if he is not an economist. Do not say” Inga fyapena nishi fyapena…..”It is not a joke to be a President because it requires a certain level of understanding of issues in general terms before you consult the technocrats on specific issues.
If you were there in the Kaunda period, you will agree with me that the Old man ran out of ideas and started printing extra valueless notes and giving everyone coupons as a quick solution to the economic challenges of that period. A certain level of education is very significant to start perceiving issues at a higher level. The country is getting stuck here!!!!!
Breaking News: Sata fires Silvia Masebo as Minister of Tourism and Arts
Its about time.
There is a time to sow and a time to reap. I would say we are now in the process of sowing but some people think it is time to reap.
Every new government has obstacles to overcome and policies take time to bear fruit. I am sure that most of the efforts of this government like infrastructure building and investing in education will come to be appreciated when they bear fruit in due season. Miracles do not happen in building an economy. It is all input. Work, work, work and more work.
What reaping? Ubufi, we dont want PF. PF is use.less.
Just because you are beneficiary of pf you are there supporting a crap government!!! Phewwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww!!!!!!!!!
Levy + Magande sterred economy correctly in 2 year after Chiluba+Sata failed it. So PF has just go it wrong. They focus on spending after borrowing instead of focusing on generating money 1st the spend later. You will never convince any one that no one cannot do better than PF. We have a standard to look at, Levy+Magande. Us we know were to touch to re-steer the economy up. That’s why were are so vicious and we will not rest until Zambia is put back on course. We don’t want Zimbabwe way.
@ Nine Chale, can you clearly give us the economic Policies of the PF Govt? What about the monetary policy? Kindly my friend, do not support simply because you a PF member. This issue of Bread and Butter must be non partisan! The Kwacha is going down Freely…..FREE FALL because of unco ordinated and piece meal policies and luck of political will( eg, Windfall Tax)……By the way, who is the economic advisor to the president at state House?
Ba Nine Chale. One thing I can tell is things are bad. I sent money home last week, and with the new SI 55 and all, no money has been credited to my relatives. The kwacha dipped and im sure the bank does not want to release twice the money for the same amount five weeks ago. Just saying…….
this govt is sending to many negative elements into the economy by lacking stability in many of the areas. Now Masebo is fired, and changes have been noted at PS level without regards to a persons ability or capability when moving people across ministries at this level. PS are the technocrats and once this is messed up as is the case the entire system is in trouble.
Hi Hjoe,
where have you been. You articles are so articulate and full of wisdom. You should be writing every week. Also direct your intelligence to guide a political party of your choice with strategies on how to replace PF asap.
Me to the poeple insalting me ati think why can’t you see kanshi RDA has created roads University of Zambia has more universities what more??? Ba Sata has built everywhere even more than Mwanwansa. You think yourselves us PF we just working. Me am a youth but wrk hard next year aybe I will be DC and I will be laughing with your think and chumbu whatever.PF 2016 forever
Continue enjoying your short time of success with your paymasters. Time of reckoning is soon approaching for sata and his pf.
With such characters like this PF 4 LIFE, we are getting nowhere……Who has a small pin charger Please? Next issue ba LT!
Finally debris of the missing Malaysia Flight 370 located in the Indian Ocean as foretold by Man of God TB Joshua, glory be to you the God’s messenger. Shame to you all doubting Thomases for you don’t believe that God does miracles through his truelly chosen messengers like TB Joshua.Glory be to God Amen.
But everyone knew that that plane must have fallen in the sea somewhere that is why they were searching for it. So what prophecy was there?
I have just read Chola’s post in the Zambian Economist ************
We need serious economic planners in Zambia right now.
What Chola has advised, was given to the voter for free on this site. I recall informing voters that PF had no tangible economic policies to drive this country forward. On food security again the advice was simple, PF had and still has not clear policy on this matter. Therefore, to expect anything better is odd. what is sustaining this economy is the hangover of Mwanawasa plans and continuation of RB implementation of HE LPM the true Zambian son who had the love if the country at heart.
Baba this is no forum for TB Joshua,go to his page,iwe fu..lwe
This country needs people like you Hjoe.
When you put investment to work, then you are getting more prosperous. Imported buses can transport passengers at a profit. Imported printing machinery can produce documents at a profit. Imported tractors can produce supplus at a profit. Imported building materials can build hotels and lodges. What is the problem here? Imported computers can simplify work in accounting, typing, graphics, translation, etc.
Mr President,
Please open Zambia for pensioners like myself who have some savings abroad to come to Zambia and start food production ventures. I have a plan to rare chickens and pigs in Kafubu Block in Luanshya. Contemporaneously with that, I’ll use the manure to grow vegetables. On a monthly basis, I’ll hold open days for the farmers in the Luanshya peri-urban area. As I’m in the twilight of my life, I’d like to end my days in Zambia. The country has been good to me in the 24 years I spent in Luanshya and Chililabombwe…I WANT TO GIVE SOMETHING BACK, BEFORE I TAKE IT WITH ME TO THE GRAVE. Please, please sir, relax your immigration rules??