UPND's Hakainde Hichilema
UPND’s Hakainde Hichilema

WEEKLY POLICY ISSUE

While on the campaign trail in Mpulungu recently, President Edgar Lungu said that he had no problem with borrowing money to bring development to the people both in rural and urban areas of Zambia. What President Lungu has failed to understand is that if Government manages the economy properly then Zambia does not need to borrow vast sums of money and make large interest payments yearly in order to fund such projects. Furthermore, the current administration has failed to appreciate that if they continue borrowing at the current rate they risk sending the country into a state of economic turmoil.

Unlike sensible governments that prioritise domestic resource mobilisation, the PF has been on a borrowing spree since coming to power in 2011. In 3 years the PF has accumulated the same level of debt that was collected in the previous 27 years. On a recent visit to Zambia the IMF indicated their concern that the Government is unable to generate enough revenue to meet its regular development expenditure. Yet the President has clearly signaled that they will continue their trend. The recent revelations that Government wishes to issue another bond to finance the current debt is grossly worrying, particularly given the limited transparency with which such funds are then spent.

Any government that meets its expenditure by excessively relying on borrowing is guilty of economic mismanagement, and the PF is no exception.

What the PF Government has been telling us:

· Increased borrowing will raise financing for development;

· At 32 percent of GDP (US$ 7.9 billion), Zambia’s public debt remains sustainable.

What they are NOT telling us:

· Government has resorted to excessive borrowing due to fiscal indiscipline. The high level of corruption and lack of transparency in the procurement of road projects and other unplanned infrastructure projects has bloated Government’s expenditure. The failure to broaden the tax base, the under-collection of corporate income taxes, especially from the mines, and the underperformance of domestic VAT have all resulted in lower revenues. Therefore, Government continues to spend more money than it can generate, leading to a high fiscal deficit. The fiscal deficit which was just 1.8 percent of GDP in 2011 peaked at 6.7 percent of GDP by 2013, and 5.2 percent in 2014. To finance the deficit, Government has resorted to heavy borrowing.

· The high fiscal deficit, coupled with the PF’s continued insatiable appetite for borrowing, will soon make public debt unsustainable. Total public debt is currently at 32 percent of GDP. In other words Zambia owes, in real terms, US$ 7.9 billion in both external and domestic debt. It therefore goes without saying that should Zambia issue another international bond of, say, US$ 1 billion, we would have reached the unsustainable debt threshold of US$8 billion at the current GDP levels. We must remember that the level of debt the PF has built up over three years is equal to that previously accumulated over 27 years and had to be written off.

The implications of more borrowing:

  •  Debt servicing costs are rapidly increasing and are crowding out pro-poor spending. The high interest debt burden absorbs a significant amount of government revenues. To illustrate this point, interest payments on both domestic and external debt, which were just K1 billion in 2011, now stand at K5.3 billion in 2015. This is nearly as much as the K5.6 billion Government intends to spend on road infrastructure in 2015 and more than the K4.5 billion health sector spending.
  •  A Kwacha that is depreciating against the dollar means more Kwacha is needed to pay off external debt. The recent fluctuation of the Kwacha has made external debt service payments more expensive. For example, at the time the budget was being prepared, the dollar was trading at K6.1 to the dollar and now it is K7.1 to the dollar. A debt of US$100,000 will now need payment of K710,000 and not K610,000; this means a loss of K100,000 within 6 months diverted from development needs.
  •  Government has been crowding out the private sector despite saying it is the engine of growth. Due to heavy borrowing on the domestic market, Government has been using up domestic private savings that would otherwise have been available for private sector lending. Most of the local firms which are SMEs have no access to international financing have been refused loans by local banks because of the PF Government’s insatiable appetite for borrowing without regard for the private sector. The smaller remaining pool of loanable funds in the market has raised the cost of capital for private borrowers (high interest rates), thereby reducing investment demand, and hence affecting growth and welfare. If you are wondering why economic growth has been on the decline since the PF came into power then this is part of the reason.

UPND Stance

· The UPND will grow the economy by addressing the bottlenecks faced by the private sector which accounts for over 90 percent of employment and is the only way to create the amount of new jobs Zambia needs. We will look at reducing the cost of doing business (including interest rates) and improving access to investment capital.

· The UPND will prioritise domestic resource mobilisation by increasing the efficiency and effectiveness of the Zambia Revenue Authority and other revenue collection agencies, as well as curbing the high capital flight, tax evasion and tax avoidance.

· While Government continues to sing the song that the national debt is sustainable, they are not telling us how we will pay back the owed money. UPND will put in place a robust long-term debt management strategy that will ensure that new borrowings follow legal and fiscal responsibility guidelines, as opposed to the current haphazard borrowing.

· The UPND will use existing information and commission further research to estimate the cost of depreciation of existing capital stock to come up with optimal budget allocations in order to prioritise Operations and Maintenance of existing high-return infrastructure projects.

· The UPND will mitigate political expedience and corruption in infrastructure projects by, among other measures, reverting the Road Development Agency to the Ministry of Transport, Works, Supply and Communications and ensuring transparency and planning of projects in accordance with Government vision.

· Lastly, there are many options for infrastructure development that can be considered and would reduce the cost to Government, for example the Build Operate and Transfer (BOT) model that was used on the Kenneth Kaunda International Airport (KKIA) but later cancelled by the PF. The PF preferred to build the airport at the cost of over US$300 million as opposed to a BOT arrangement of US$100 million.

Together We Can

Hakainde Hichilema
UPND President

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Issued by: UPND National Campaign Centre, Lusaka

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32 COMMENTS

  1. so how can we boost our economy? Zambia is located at a position where only SA is the only producing power so we have potential to boom and develop coz of available market and start killing pipo who will come forjobs

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    • But you borrowed during KK, why didn’t you boost your economy then? What has changed among Zambians that this time you will borrow heavily and boost your economy. We behave like someone who is given capital to invest and he wastes it and want more capital, which he will waste again. So far this govt can’t even account for the money that they have borrowed, eg Eurobond. Now we know that the road project has run out of money. But how did they plan for a project to just run out of money??

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    • It beats all reasoning. PF and EL think we can have borrowed development? No wonder Chikwanda was earlier on saying Zambia’s economy is improving when the reverse is the opposite. Let those that understand the economy run the country and HH is the that man

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    • HH distorting facts and creating fiction. The language of domestic resource mobilisation (DRM) is being preached at ministry of finance and has been a priority since PF came into power!

      This is even the bedrock of AU Agenda 2063 which has our Zambian experts sitting on the evaluation panels. One problem with HH is that he pretends to offer solutions but is out of touch with reality and gives little substance!

      We as Zambians are already looking into how we can invest locally and encourage our own zambian money to circulate and create employment whereas HH pays workers very little and keeps his money hidden and is not investing to his potential like the likes of LSA.

      Don’t just yap, lead by example

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    • PF is built on a fast track mode of solving problems which have accumulated over the years. PF this do not work like that, just refer to the 90 days concept you would like to distance yourselves from now. The truth of the matter PF cadres has believed in this 90 days theory to a point of signing about it day and night. Coming to the economic challenges Zambia has today, PF again is taking the easy way out of borrowing day and night, now even attending high level meetings of borrowers with pride. It is again sad that PF cadres believe that borrowing will solve the economic challenges of Zambia, another quick fix which will backfire on all of us, in the form of increased poverty levels. Infrastructure alone cannot avert poverty, please look to Greece to understand this concept.

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    • Typical of HH. Very good at gunning down, but yet he fails to explain to Zambians, how he can change or improve things.

      HH – please start by telling Zambia, how you would balance the books and the tools that you will use to do so.

      Secondly, where will you get the money to funds the needed projects and infrastructures.

      The Opposition have access to all the budgets presented before parliament, yet they fail to announce alternative approaches to balance the book or priorities projects.

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    • Simply put, you’re either part of the problem or part of the solution!

      HH is part of the problem! We all as Zambians need to be part of the solution, it doesn’t take tags of PF or UPND for one to do the right thing! Until HH wakes up and starts solving our problems I’m very sorry but voting for him would be a waste of time.

      There’s no way you can say to me I want to make your life better and yet all the opportunity you’ve had to change lives even through small academy’s sponsored by others but with your name but still nothing, busy claiming that you want to find the next Usain bolt from zambia, what is difficult about changing perspective today? Is it only in state house that you can do it?

      HH is in beef, but he’s too greedy to invest or borrow , diversify andd employ at…

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  2. People might HH names, but he is right. Why we can’t learn from history, I don’t know. KK borrowed for “development” and the failed to pay back the loans only to be forgiven. This one my friends will not be forgiven. Our children will have to suffer to pay it back

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    • HH distorting facts and creating fiction. The language of domestic resource mobilisation (DRM) is being preached at ministry of finance and has been a priority since PF came into power!

      This is even the bedrock of AU Agenda 2063 which has our Zambian experts sitting on the evaluation panels. One problem with HH is that he pretends to offer solutions but is out of touch with reality and gives little substance!

      We as Zambians are already looking into how we can invest locally and encourage our own zambian money to circulate and create employment whereas HH pays workers very little and keeps his money hidden and is not investing to his potential like the likes of LSA

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    • What facts is he distortion? That PF is borrowing heavily, that the debt is over 30% of the GDP? That we have run out of money, which was borrowed for the roads project? What facts are being distorted my man. But you single out DRM, which you righly say is being preached at MoF. But preaching about it and doing something about it are two different things. remember that they have also been preaching about achieving the MDG for many years, and came 2015, they got two out of 8.

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    • Why are you doing the same as HH, distorting facts and being out of touch with reality!

      Govt will not solve all of our problems as Zambians! Zambia belongs to us not the govt! Govts job is exactly what you and I have spelled out, encouraging DRM, providing the environment, which they are doing, but if we have this HH mentality where we are still very reluctant to put our money into circulation, to resist the idea of investing like LSA and Dangote, to actually be begging and waiting on the likes of Dangote to Ddo the investing on our behalf, to leave innovation to the Irish at zambeef and Proflight then we can’t progress!

      These are the issues HH fails to show leadership on and fails to address! PF is working at this, but if we don’t own it as Zambians we won’t have any results…

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    • What are you talking about? I think you are all over the play. How does Dangote come in this issue? You have lost me. I think the issue here is very simple, just like homeeconomics; we can’t and should not live beyond our means. We shouldn’t just get a loan to buy a BMW (as a means of development) when our means can’t sustain the loan. That’s what PF is doing.

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    • How will HH walk a talk he’s not walking himself? This is my argument!

      Charity begins at home, you can’t live a life of corporate bulldozing and then preach austerity! HH has the capacity just like Dangote and LSA but the mindset is very different.

      In HH we have someone who prefers to talk than to act. Zambian economy one big problem is DRM and it’s because of a number of factors including lack of confidence in ourselves to invest locally and also hiding and sitting on our money. Simply put if we take the LSA route, we’ll be creating employment, turning a profit, driving the economy forward.

      But our mindset is different, we will buy more cars and build more houses and wait for chinese and Nigerians to set up milling plants for our own consumption

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  3. Article makes alot of sense, now this is no place for cadres to come out and make ignorant rants. This is food for thought for the learned and concerned citizens

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    • Unfortunately, they will come and rant nonsense my friend. As long as it is this man who has said it, they will not see sense in his message. Just wait for the yambayambas????

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  4. What HH has pointed out is what every reasonable thinking Zambian has to analyse and see where this country is heading to… Zambians shouldn’t pretend that the PF is doing the right thing until they found themselves into a big ditch..

    As concerned and learned Zambians, we have the duty to prepare the country for our future generation and not allow things that will bring pain in the future.. It is clear that HH and provided facts with figures and has offered an alternative, which the PF can copy and paste from..

    To cadres, read the whole article and understand before you offer your comments than to attack HH.. State your point and probably an alternative solution that will help build Zambia’s future without hurting future generation…

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  5. In fact the guy is a true economist. Assuming he can implement the same if given a chance, this is the man to watch come 2016:

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  6. Political affiliations aside, HH has a point. Honestly speakin borrowing is not a solution and will never be especially by poloticians. we need a party, a president, a cabinet, that will be able to make policies and decisions that will not affect ourselves, our children, grand children and the next generation to come. These Debts that Chagwa and his ministers are proudly borrowing day in day out will have a strong negative impact our salaries through PAYE when the repayment time comes. whether PF, MMD or UPND everyone will all be affeted.

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  7. This HH, here are simple questions for you.

    which govt in the developing world that is not borrowing for infrastructure development ?

    Zambia Railways was leased out under PPP , did we see any improvement ?

    You are wishing to do , Build Operate and Transfer, like the MMD did for kamwala and town center market and Signed a 40 years agreement for the I infrastructure that can only 20years. Is there any sense ?

    In fact build, operate and transfer will externalise more resources than borrowing from external and local sources.

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    • For God’s sake stop crying over ownership of a market. Most of the infrastructure you envy in the western world is operated under the same principle, including most toll roads and airports in the USA. The principle is to make available the service to the consumers rather than to have ownership of the infrastructure. Government has too much to do and should concentrate on its core business of creating a conducive invironment for private operators and persons to invest in development projects.

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    • Answers to your questions
      1. Botswana is not borrowing and Angola is lending to countries like Portugal
      2. No there was no improvement because of poor capacity to negotiated for proper agreements; just like the case of inviting Chinese to mill bunga for you in every province. The millers will not benefit you at all
      3. You need to do an risk – benefit analysis for BOT. In this case look at the $200m will you spend now and how long it will take to make that money. Thereafter, make informed decision.

      Otherwise, have a better approach to economic issue which are well guided by informed choices and not emotions as per the usual approach of cadres.

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  8. Everyone knows what needs to Bo done. The problem that even HH has not answered is the how. The same HH is on record condenming govt when they try to increase mining Taxes, what a joke this man is!
    HH knows it’s is not a fault of PF, he just wants to politic here.

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  9. Zambia has only to opposition parties namely upnd and fdd ,whn an oppisition supports the ruling party it fails to offer credible checks and balances and eventually its assimulated,too bad for mmd.qoute.pro.alex ngoma , political scientist.

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  10. “UPND will put in place a robust long-term debt management strategy that will ensure that new borrowings follow legal and fiscal responsibility guidelines”

    Criticise the PF on borrowing then do it yourself! Who advises this man?

    Here are a few ideas for you. Tell us how much you will spend on education, health, social welfare, transport and infrastructure. Tell us your plans on income tax and minimum wage. Also tell us how you intend to finance all these. Does he actually know how he would cut the current deficit and ensure that we have a surplus? I could go on….

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    • Why are you asking from UPND to say how it will do it when at the same time you are mum about current hit and run policies?

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    • No one says that borrowing is bad (that’s the problem with PF cadres, Skopo is limited). It’s the level of borrowing that is an issue here. You can’t borrow way beyond a sustained threshold, in the name of development. Accountability for the money borrowed so far is also questionable. Why run out of money in the middle of a project that you properly planned?

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    • How am I meant to vote for them if they don’t sell their manifesto? Or should I vote using tribe like others do?

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    • You are asking UPND will do it because you have failed? So you want to say that all the issues you have raised are not doable? For sure your Skopo is limited; there are a lot of countries that are doing it will, including the one you are seeking economic refuge in. Why can’t PF learn from other countries that are doing it well. At least Mwanawasa at one point went to Botswana to learn how they were running there mines to learn a thing or two. Why can’t Lungu do the same

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    • @Viglen Vote for tribe all you want. But at the end of the day poverty knows no tribe. It hits all.

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  11. We need to understand what HH is saying before we criticize or support him. There are some truths in what he is putting forward but some questions too! The current govt has failed to collect taxes from mines under the corporate tax arrangement (coz mines have international complex schemes to evade tax) then Govt revised the regime to single mineral royalty tax which your MPs supported in Parliament.But you later criticized it in Political campaigns,how can people trust that you have an intention to tax mines for the benefit of Zambians?On this;you are contradictory! However,on expenditure,debt monitoring and infrastructure management,he is spot on! For KKIA BOT is appropriate than to borrow huge sums of money to invest in an airport without a strategy on how to commercially recover it!!

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  12. But what did HH say when the mining tax was increased ? The guy was totally against the increment of the mining tax. What has changed tooday ?

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