The Jesuit Centre for Theological Reflection (JCTR) has opposed to the Government’s plan for an upward adjustment of the debt ceiling from K35 billion to K60 billion.
In a statement the JCTR said;
“While we appreciate the Minister of Finance’s right to increase the debt ceiling in accordance with the provisions of the Loans and Guarantees (Authorization) ACT Cap 366 of the Laws of Zambia, we disagree with his request for an upward adjustment of the ceiling from K35 billion to K60 billion.
However, we are glad that government has created a sinking fund, though belated, as it will ensure smooth repayment of the two Eurobonds which were contracted in 2012 and 2014. We are however, dismayed at the extent of the fiscal deficit reported in the Minister’s statement and the key policy proposals by which he intends to address the fiscal deficit.
The Jesuit Centre for Theological Reflection (JCTR) is saddened by the gloomy economic outlook that was stated in the 2015 Mid- Year Economic and Budget Review Statement made to the National Assembly on 16th June 2015 by the Minister of Finance.
Zambia should not embark on reckless additional debt contraction
What is particularly saddening is the size of the projected fiscal deficit of K20.0 billion representing close to half of the 2015 budget. We are also disturbed that the government plans to abridge the fiscal deficit by way of borrowing on commercial terms. The Minister of Finance in his statement further requested the Legislature to increase the ceiling on external borrowing from the current K35 billion to K60 billion. As a Centre we hold that Zambia’s current economic malaise though it has some historical attributions, we are nevertheless convinced that it has been worsened by poor fiscal governance attributed to poor policy choices. Clearly, there is a massive mismatch in national policy priorities.
We dismiss the Minister’s rational for additional debt contraction to address the fiscal deficit. His argument that Zambia’s public debt currently standing at 29 percent of Gross Domestic product (GDP) is still sustainable and therefore warrants room for further debt contraction should not be entertained by parliament. We contend that Zambia’s public debt as a share of domestic revenues has already reached the critical threshold of 15-20 percent beyond which austerity policy measures will have to be undertaken. Given the size of our economy, additional debt contraction is going to adversely affect social sector spending therefore spelling grave consequences on posterity.
A government that throws away its mining tax regime that would have ensured a more balanced budget should not be trusted with borrowed resources.
As JCTR we state that Zambia should not embark on reckless additional debt contraction. The nation cannot borrow its way out of its development challenges at every instance. We appeal to the executive and the legislature that the way ahead for Zambia clearly requires tough decisions, tough choices and fundamental socio-economic transformation without which the current situation will worsen as we proceed into an election year. We therefore appeal to parliament not to heed to the dictates of the executive on further debt contraction. Parliament must guarantee Zambia from a sovereign insolvency on this score. If parliament approves the executive’s midyear budget proposal on increasing the debt ceiling Zambia will pay a high price in terms of further social and economic polarization which will include diminished investor confidence and higher future taxes.
Accordingly, JCTR recommends a wide range of policy proposals which include
- a reconsideration of the nation’s taxation system as well as guaranteed public policy consistence and a re-evaluation of some of the current capital and infrastructure projects.
- Government needs to do more in terms of reducing unnecessary expenditure including closure of some embassies that have hugely contributed to this crisis as the Minister himself mentioned.
- Further, the decline in trade taxes recorded by the treasury on account of reduction in import volumes though attributed to the high cost of foreign exchange also stems from the administration of trade taxes. Has the executive dared to compute the customs business and tax collection downturns on account of recurrent failures to clear goods in accordance with the ZRA service charter owing to intermittent internet services which impinges on efficient and effective functionality of Asycuda World which results into goods being marooned at ports of entry?
We find it disturbing that of all the reasons advanced regarding the dismal economic performance recorded in the first half of the year resulting into a K20 billion deficit, the executive has all but blamed it on exogenous factors and not once have they taken responsibility for some poor outcomes stemming from reckless policy choices they have pursued.
We shudder to think what the end year deficit will be. While there could be room for more borrowing, the current government’s public finance management record does not inspire confidence that increased borrowing will bring any meaningful results.
A government that throws away its mining tax regime that would have ensured a more balanced budget should not be trusted with borrowed resources. Government has further surrendered markets and bus stations that would have brought in more revenue to government to PF cadres and yet they expect Zambians to support their borrowing spree. The poor economic choices of the government are no longer sustainable. Therefore, we call for the executive to put its act together by intensifying domestic resource mobilization, rationalizing expenditure and asserting the nation’s fiscal sovereignty.”