How Debt Ceiling and Excessive Borrowings Delay Civil Servants Salaries

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Gender Minister Inonge Wina congratulates Finance Minister Alexander Chikwanda shortly after Finance Minister delivered the 2015 budget
Gender Minister Inonge Wina congratulates Finance Minister Alexander Chikwanda

State admits Zambia is an economic basket case by calling the IMF!

By Kalima Nkonde

The Minister of Finance, Mr. Alexander Chikwanda asked Parliament to approve raising the debt ceiling in order to enable him to borrow more from both the domestic and external markets as required by Chapter 366 of the laws of Zambia- Guarantee (Authorisation) Act and the new Constitution. This is the third time in three years that Mr. Chikwanda has asked for the raise in the debt ceiling. The PF administration has increased the external debt ceiling by 800% from K20 billion in 2011 when they took over to K160 billion in 2016. The domestic debt ceiling has also been raised from K13 Billion to K30 billion or 131%.

This is an astronomic increase by any standards and is not normal in any properly managed economy!

The debt ceiling is the maximum amount the Executive( Government) is allowed to borrow by the law and it needs to be authorized by the legislature( Parliament) so as to avoid the Country falling into the debt trap and becoming a highly indebted nation like Greece recently and Argentina some years ago. It is to avoid over borrowing which results in the government spending the majority of resources on servicing of loans with little left for other sectors of the economy especially social sectors like health, education, poverty alleviation, water and sanitation

In 2014, the debt ceiling was increased from K20 billion to K35 billion. In 2015, it was further increased from K35 billion to K60 billion and now in 2016, it has been increased from K60 billion to K160 billion which is a 167% increase! It means parliament has authorized government and given them a blank cheque to contract external debt up to $14 billion at the exchange rate of K11.4 to a dollar.

This goes to support those of us who believe that we need more educated people in Parliament – even better than grade 12 Certificates – as the majority of members who voted in favour did not know or understand what they were approving and its implications.

Some of the impressive comments and reservations on the debt ceiling came from MMD Mafinga Member of Parliament, who really deserves to be called Honourable, Catherine Mugala! The majority of “Honourable” members did not even know that may be they were shooting themselves in the feet as their salaries and gratuities may be paid late as government may needs to service loans first before anything else. Also, they were consigning the country into the debt trap and few Zambians who they represent would have approved such a raise if it were properly explained to them- at least not an increase of 167%!

Suffice it to say that part of the increase in debt ceiling can be attributed to the depreciation of the kwacha. But by and large the increase is meant to facilitate borrowing to plug the huge budget deficit and finance election year related expenses.

The implication is that government intends and is preparing to borrow more both locally and externally as we approach August 11,2016. This will increase Zambia’s indebtedness further and slowly take the country over the cliff and into a debt trap sooner rather than later! It is no coincidence that Government is now calling on the IMF so that they borrow from them!

In one of my articles in 2015, entitled, “How Zambia’s excessive borrowing will affect you soon, take more money from your pocket and bring IMF back”, I predicted about the IMF coming back to run our economy and Finance Minister, Mr. Alexander Chikwanda just recently announced in a ministerial statement to Parliament that Cabinet had resolved to engage IMF on an economic programme.

“I wish to inform the August House that Cabinet at its meeting held on 15 February, 2016 approved that government engages the IMF on an economic programme within 2016. An IMF team is expected in March, 2016 to commence discussions in this regard,” Mr. Chikwanda said.

I also predicted that public sector salaries will be paid late as debt repayments will suffocate public finances and this has come to pass. These were among the several negative effects that I warned about in the light of the PF administration’s reckless and excessive borrowing in a very short space of time, all in the name of the so called development when in fact it is motivated by economic populism which is tied to the electoral cycle.

In recent months, Civil servants have been paid late and most of them do not understand why! The main reason is that the government has to prioritise in making payments. The first priority for the government is to service the billions of United States Dollars that Zambia has borrowed and not civil servants salaries. Governments are not expected to default on their loans and that is why loans to them, in financial management theory are referred to as risk free.

If a government defaults and fails to pay the loan when it is due, the market will interpret that, such a government is broke and this will have a devastating multiplier effects on the entire economy.

According to Mr. Chikwanda, Zambia’s external loan stands at $6.4billion. In June last year these loans were equivalent to K46.9 billion when the kwacha was at K7.33 to a dollar. At the moment in March, 2016, the same loans have ballooned in kwacha terms to K72.96 billion at the exchange rate of K11.4 merely by the depreciation of the kwacha.

The loans have grown by K26.06billion or 56% in less than a year. This simply means more kwacha is required to pay for the same amount of loans and therefore less money is left to pay for civil servants salaries and suppliers. A large chunk of government revenue is going to servicing of debts and there lies in the danger of excessive borrowing in foreign currency and continuous rising of the debt ceiling!

It is important for Zambians to appreciate that the state of government finances is dire. The Minister of Finance has admitted this in answering a question from UPND Member of parliament Jack Mwiimbu.

“Mr. Speaker, honourable Mwiimbu has said I have presented a very gloomy picture. I have presented a true picture of the economy, I do not want to embellish or glamourize things which are not there. Yes, things are not good. Things are not rosy and it will be dishonest for government to display a very rosy picture. There are challenges in the economy,” Mr. Chikwanda said.

The reality of Zambia’s public finances is that they are highly stressed because we have over committed ourselves with the ambitious massive infrastructure programme and have been grossly financially indisciplined.

We have been in denial about the economic problems for a long time and the situation has just become worse and we have no option but to call IMF to help us. IMF member countries go on their programme only when they have failed to run their economy otherwise IMF only do routine annual inspections on member states.

The other reason why Civil servants salaries are late is that the wage bill is too high and it is a struggle for government to raise revenue monthly to meet the bill.

Zambia’s public sector salaries make up over 52% of the budget instead of a sustainable percentage of about 20%. This huge public sector wage bill means that if Civil servant were to be paid first, the government will default on the loans and we will be another Greece.

As a way of background, in 2012/3, the PF government awarded between 100% – 200% wage increases and imposed a wage freeze for two years. In the current year, 2016 Civil servants will get salary increments ranging from 9% to 29% further increasing the wage bill. These salary increments are not related to any productivity increases.

There is no doubt that the public sector bill is straining the economy because one section of society is eating the bulk of the cake and leaving very little for social sectors like health, education, water and sanitation and productive sectors like energy, agriculture, tourism little money for investment. I can foresee the IMF targeting this apart from subsidies on fuel, energy, farming in their programme.

In conclusion, although I am not a fan of the IMF as a Zambian who is old enough, with fresh memories of the late 1970s and the 1980s when we were under the IMF’s inhuman Structural Adjustment Programme(SAP) that brought so much misery to ordinary Zambians. The government should be commended for finally biting the bullet and asking the IMF for help.

Zambians should cautiously be optimistic about the IMF programme because our government have proved to be financially indiscipline, inconsistent and may be it needs a Captain to supervise them. In addition, we are told that the IMF of 21st Century is more humane is flexible with conditionalities and does not come with one size fits all and has greatly reformed.

The reality, though, is that going for an IMF bail out means in some way that you have lost your national pride and self respect. When you go to the IMF, it is admitting to the whole world that you have mismanaged your economy, you are in a crisis and you need big brother to help you manage the economy as you cannot do it yourself! Unfortunately, the situation that Zambia finds itself in now, like in the late 1970s, is one where we have no option but to engage the IMF for an economic reform programme and bail out. It is a necessary evil and we asked for it by mismanaging the economy since 2011 when the PF took over.

The IMF programme will bring policy credibility and confidence to the market and the international community and stop the bleeding. The IMF will bring into government financial discipline and thereby achieve the following objectives:

  • Stabilize the kwacha through the balance of payments support thereby save kwacha from further depreciation therefore forestall further inflation and cost of living increases
  • Reduce or contain public expenditure
  • Restore investor confidence and help in Foreign direct investment inflows whish have almost dried up and therefore assist with kwacha depreciation
  • Facilitate mobilizing additional revenue sources from multilateral institution and bilateral Donors. It is common knowledge that most donor countries will only deal with you when your economy in shambles if you are on an IMF programme as they do not want their money to be wasted. It will be difficult to get grants or loans that are in the budget if we do not go on IMF programme.
  • Bring in better Public debt Management by carrying out credible debt sustainability analysis and strengthen risk management practices
  • Reduce exposure to contingent liabilities by minimizing the use of sovereign guarantees
  • Strengthen public financial management and restore budget credibility and avoid significant cost overruns

The writer is a Chartered Accountant by profession and a financial management expert. He is an independent and non partisan commentator/analyst. He has lived in the diaspora in England, South Africa and Botswana for over 25 years.

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53 COMMENTS

  1. Kalima, brilliant economic analysis, this has always been the main debate: fast-tracked, and short-term infrastructure development versus the long-term for price on unsustainable economic performance of the country. Can we now, with due respect, but with objectivity, admit that we need to make a substitution at State House, a new economic manager and captain required, a new tactical approach for the Zambian Enterprise and endorse men and women with proven track records in their livelihoods with mouths brushed-out of uncouth speeches?

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    • What surprises me is the mediocrity within the Civil Service itself. Your salaries are delayed every month and you think it is business as usual and even support Edgar. What kind of warped up thinking is this?

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    • YOU DO NOT NEED TO BE PARTISAN TO SEE THAT THIS MAN IS SAYING THE TRUTH. WE NEED CHANGE OF MANY THINGS INCLUDING GOVERNMENT TO COME OUT OF THE CURRENT CRISIS. HOWEVER LET IT NOT BE UPND TO MOVE IN STATE HOUSE BECAUSE EVEN THE LITTLE RESPECT WE HAVE REMAINED WITH WILL JUST BE SWALLOWED INTO TRIBALISM. GOD HELP US. WE NEED A PARTY WITH A VISION.

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    • Brilliant article, this is what it means to go for someone’s throat, traffic is low on this article, most vehicles with pf registration are avoiding this route, most of them using hate speech Highway, need to translate it into Zambian languages, and distribute them to the masses, Mr Kalima Nkonde is that ok with you?

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  2. As if living in the diaspora gives your opinion more credibility.
    Where are your references?

    That aside, I see nothing wrong with borrowing if that money is channeled towards infrastructure development and there is prudent accountability. You people get loans to buy cars, build houses and even for things like weddings.

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    • Everything is wrong with borrowing. Live within your limits and if you borrow, make sure you have the capacity to pay back. Do we have the capacity to pay back? At the moment the country has no capacity to pay back……then why borrow? Do not support issues that will bring misery to our children 30 years from now????

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    • Twenty-five years ago the Zambian regime was in its death throes. In the face of rioting, food shortages and an attempted coup, President Kenneth Kaunda agreed to drop the one-party state. The country’s first multi-party elections for parliament and the presidency since the 1960s were held on 31 October 1991. The opposition Movement for Multiparty Democracy candidate Frederick Chiluba thumped Kaunda and his United National Independence Party, gaining 76% of the vote.

      Zambians had tired of Kaunda’s statist inefficiencies, which had seen debt levels rise above $7-billion, at the time the highest debt-per-capita level worldwide, and copper production, on which its foreign earnings were almost totally dependent, drop to a third of their 1972 peak of 720,000 tons.

      Although the population…

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  3. Mudala well articulated! Now let’s hear from those quacks who always praise foolishly. Bottom line we are in deep,deep trouble. Kalima keep on educating them one day reality will dawn on them.

    AMEN!!!

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    • Zambia is back to square 1… keep Lungu in pwer and suffer. He is not taking Zambia to the next level…!

      PLEASE KEEP LUNGU AND LEAVE HH ALONE, LEAVE THE TONGAS ALONE.

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    • @ Chisenga DF is NOT a tonga party, and neither is it HH in leadership of DF. Be democractic and just vote for your party and stop belittling others. ALEISA – Remember your Bember lessons – Bembas came from Kola – attacked the Northern province, robbered the Mamwebes and and Namwangas of their land – till today the name still stands – TWAFUMA KU KOLA
      Read Simon Kapwepwe’s books and learn something

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  4. Just watch as the cadres divert the topic to HH, tribalism, who is holy, who is humble and who sold the mines. This advice will fall on stone deaf ears. Is this not the very same advice HH and Nawakwi have been singing for almost 5 years. What were the responses bitter, tribal, lekeni ateke, seleni tu bombeko, how did you get so rich, you are just prophets of doom, imisebo this imisebo that. Izo zawela nkani lomba. Your chickens have finally come to roost. Those of us who survived the IMF era (under the very same dinasour chikwandasourus rex) learnt a trick or two how to make it and how to get by when he’ll and high water come good luck to you newbies you are in for a rough and tough ride buckle your seat belts, hold on to your helmets and enjoy the ride. He who does not learn from…

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    • spellcheck,
      you dont have to worry, the PF kaponya cader thieves dont venture on topics of this nature, they are too dull to understand. Those that do understand plead deaf and dum and too busy looking at ways to loot.

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    • @Spellcheck
      Yes my country mate those of us who survived the dangerously toxic side effects of the IMF prescription will never forget how our country was reduced to near zero from 1986 to 1994. Mwanawasa came and pleaded the case and we were forgiven the crippling date to a larger extent. Today in the wake of the impending HIPC II all we hear from PF cadres is imisebo this and imisebo that; seleni tubombeko rubbish and tribalism and kachema that. They say countries deserve their leadership and Zambia is now a classic case where this adage applies.

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  5. He who does not learn from advice must learn from experience. When some of us have been advocating for some one who has been delight with his own finances it has been yayi nimu Tonga enjoy bane if you think it’s tough now wait till IMF come

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  6. ONLY THOSE WHO ENJOY THE DANCING TUNE TO THE COLONIAL MASTERS WILL CELEBRATE. PF IS A FINISHED PARTY AND I HAVE OBSERVED THAT LUSAKA TIMES IS NOW PF SYMPATHIZER. SURELY YOU CELEBRATE DEBTS TO BE GOOD WHEN YOU HAVE NO CAPACITY OF RAISING FUNDS SINCE YOU CAME INTO POWER? MWAPWA.

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  7. UKUSAMBILILA KUSUMA. MONENI UMUNENU EFYO ALETONTONKANYA. IMWE KUWAYAWAYAFYE. SHIBUKENI.

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  8. Debt Ceiling Calculation

    K160,000,000,000.00 Approved Debt limit
    $14,035,087,719.30 Converted to $
    $1,002.51 Per head(divided by the 14m population)
    ZMK 11,428.57 Per Zambian to pay back

    The Govt has just given every Zambian a debt of $,1000 or K11,428, even the ones who are born this minute has accrued this debt because we have to pay it back as Country.
    Then someone is preaching continuity? Wake up people or else we will be heading for disaster!!!

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    • @Talking Sense, you have not factored in the interest payable on the debt! Please re-work your calculations…

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    • @Bufi Tuutu Thanks for the clarification, but I wanted to give a vague picture of what increasing the debt ceiling means in layman’s terms, from my understanding if these loans are calculated based compound interest, then for $14m (compound rate @ 12%) will be calculated as follows:
      Assuming Zambia pays $200,000 per month, we divide the annual interest rate by the interest payable (12%/12% =1%) its then calculated at 1% per month. If we subtract the February payment from $14m (14m-200K= $13.8m) now we calculate the updated interest by multiplying 1% of the principal amount ($13.8m) which is $138k. We sum up $13.8m + 138k = $13.9m becomes the outstanding amount.
      Note that these figures are just used for illustrative purposes….

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  9. Mr. Nkonde, you are very right, but pity what would happen to employees if the Civil Service was to be reduced with situation currently obtaining. Time and again, some of us have decried on the need to strengthen the productive sectors, but all in vain. I guess this is the result of having mostly politicians running all sectors of the country.

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    • My post to read… Time and again, some of us have decried the priotising of the public sectors only, instead of the need to strengthen the productive sectors as well, but all in vain.

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  10. EXCESSIVE GOVERNMENT EXPENDITURE IS THE PROBLEM. FISCAL RESTRAINT IS THE SOLUTION.
    In order to solve the expenditure problems of this country, government must learn, or be compelled, to exercise fiscal restraint.It is therefore appropriate that radical expenditure reduction become a common component of the reforms mandated in exchange for IMF assistance. I do not mind if even if prudence is exercised via externally enforce fiscal targets as long as we are on track. Lets exercise prudence in the use of our scare resource. Best regards

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  11. One really would need to question the brain composition of PF supporters, like seriously

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    • But my dear you don’t expect PF dunderheads to understand this complex article. To them (PF) Cadres starting from Kaminamisa all the way down their ranks, this is just jargon, period.

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  12. one of the most brilliant articles i have read so far regarding the economic chaos we are in as a country.Lack of Financial Discipline has indeed messed us up.We need an economic manager to get out of this mess.Imagine HH + IMF,this country would be free of debt in less than 10 years….but as usual nimu tonga ,he doesn’t smile ,his rich etc…what the IMF is coming to do can be done by our very own HH.Hell he’s been preaching this for a while now…but kuwayawayafye!!!

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  13. “When you go to the IMF, it is admitting to the whole world that you have mismanaged your economy, you are in a crisis and you need big brother to help you manage the economy as you cannot do it yourself!”
    good article Kalima let him who has ears listen!

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  14. HELLO COMRADE CAN YOU DO THEM A FAVOUR BY TRANSLATING THIS WONDERFUL ARTICLE TO BEMBA SO THAT THE LIKES OF FAZA BWALYA, DAVIES CAHAMA, MUMBI PHIRI, SUNDAY CHANDA, CHISHIMBA KAMBWILI AND THEIR BOSS KAMINAMISA CAN GET SOME SENSE OUT OF THIS ARTICLE

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  15. Zambian Government bans sale of foods on streets to reduce further spread of cholera!!! THIS IS GOOD NEWS

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  16. This is what happens when you have a very powerful head of state. Now we need him to use his “humility to sort out our economy”. But imagine cabinet was outside parliament. MPs wouldn’t be dancing to the whims of the executive but would be providing their oversight role. Then imagine a citizenry that don’t worship the president. Most would be thinking outside the box like Kalima is doing. But since we all depend on the president for survival we cat criticise him even when its plain to all that the idyot is naked.

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  17. Its a good article at least explains one side of the story,that is the cost side of servicing the debt.What i find disturbing about this article is its lack of balance.Why do I say so?
    1. The article does not account for the impact the borrowed funds will have on the nations GDP now and in the future.
    2. What will be the cost of not borrowing?If gov’t ford their arms and say they will not borrow to build roads,hospitals,clinics,schools,etc, what will be the long-run cost implications in the delivery of these services to the Zambian Enterprise?
    3. What is your alternative plan if you were the one in charge.Please dont just say HH,or GBM or MILES,or indeed Muliokela, give us an analyssis of figures of your alternatives and then this article will be balanced,otherwise its very easy to…

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    • @Sobriety, You sound like a knowledgeable person…. So why don’t you educate us by answering the questions you have raised, give us your own analysis so that we may go away with “balanced” and well informed minds!

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    • @sobriety: if you do have figures on how Zambia has benefited from these loans, counter this article so that we all have a balanced understanding and join those applauding Govt’s relentless borrowing.

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    • I think Sobriety is being political by failing to analyze the article and then give his side of the failed government plans.

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    • No @ buff tutu, that’s not how to debate. He supports borrowing but you are against. It us for you to argue forcefully and intelligently countering his picked up points. The fact us you people just like to argue for arguments sake. How can you build a nation with people like you. You hate your country, everybody does it better than you! For goodness sake!

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  18. Can any bank hire a grade 12 to manage any of its branches? Can the reader hire a grade 12 to manage his/her 5 million dollar worthy company? How can the qualification of a guard be exactly the qualification of the president…Iyeeeeeeeeeeeeeeeeeeeeeeeehhhhhhh!!!! Mwebantumwe nangu mwalipena………… What is the problem in Zambia????????? There should be correlation between POLICY FORMULATION and POLICY IMPLIMENTATION.

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  19. Things are bad bane, let’s pray hard these PF guys seem not to know what they are doing. This Chikwanda I have always said has no heart for future generation, he’s too old to worry a thing. Gents let’s vote wisely come August. Hard luck.

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    • The core issues at hand are a bit advanced for the comprehension of some colleagues and the writer of the article has given us his credentials which are above grade 12 level of education so don’t expect PF cadres to comment sensibly.

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    • Here I am @Spaka. I have already previously commented on this topic this week if you do your research before mouthing off. All countries need to borrow for development in fact our national debt us peanuts to USA’s trillions. Get your belief systems properly informed by proper academic reasoning. Mismanagement is NOT the problem in Zambia it’s the new unplanned for emergencies arising out of the economic climate. There has been a turn of bad fluctuations to deny this is superficial and argumentative based on fantasy. I agree that we need better Public debt Management but I am certain that credible debt sustainability analysis WAS carried out by economist before borrowing.

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    • Patriot abroad
      Just you comparing the Zambian economy to the US economy shows the level of bankruptcy in PF thinking.

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    • This kind of talk is what costs UPND elections.When you insult majority uneducated Zambians by derogatory labelling them as Kaponyas, intimidate them by claiming to be superior and lacking understanding. The result is ganging up of the less privileged against the elite and believe me or not that is deadly for UPND and for Zambia in general.

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    • @Spaka my friend from across parties, I am not comparing USA to Zambia, but making a point that borrowing is part of economic policy for all countries when faced with developing required infrastructure etc.

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  20. The problem is not that the government is not listening but the challenge is are they able to understand what to do??? It is nice to be in power but do we know how to look after this house called Zambia???

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    • @jjj the problem is the inability to analyse how the fluctuations in markets affect best laid plans. Just denying the real causes of the new borrowing is being superficially argumentative.

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  21. Nkandu Luo jubilated when the debt ceiling decision was put to a vote saying, ‘nalelo twala fiwina’, in reference to the opposition! Did this ugly woman understand the implication of this increase to the country! Who awarded this ugly thing the professorship! These idi0ts in PF are heartless and have no interest of the country but themselves! They live for moment. When this country will be in very serious problems coz of the these debts, they know by then they will be long gone due to HIV/AIDS!

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  22. The trouble I have with people like the writer us that they always end their fantasy pieces by saying they gave lived abroad for 100 years and worked in high position(suggesting they know better than the economists in Zambia), yet they NEVER want to return to their motherland to help out. Just shouting advice to a drowning man is not really help us it? Get in there and show them how to do it.

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    • Unless the writer is well connected in PF he stands no chance. You have a broadcasting minister, kambwili, on record telling manegers of ZNBC to only employ reletives as he is doing. Nepotism, unaccuotability and corruption under PF is now viewed as part of life.

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  23. Had I known that the canoe ( bwato) was heading toward IMF’s neocolonialism, I wouldn’t have boarded it.

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  24. This article was written to campaign for UPND, if the writer is an expert in Economics, does he know that you have to borrow to create value?

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    • Remember when Levy came to power and Zambia was being sold for £1 -(one dollar) for the all the $7 billion debt they owed? Same is happening soon under PF, watch this space.

      POVERTY HUNGER DISEASES AND HIGH LEVELS OF PRE-MATURE DEATHS – ONLY IN ZAMBIA

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  25. Twenty-five years ago the Zambian regime was in its death throes. In the face of rioting, food shortages and an attempted coup, President Kenneth Kaunda agreed to drop the one-party state. The country’s first multi-party elections for parliament and the presidency since the 1960s were held on 31 October 1991. The opposition Movement for Multiparty Democracy candidate Frederick Chiluba thumped Kaunda and his United National Independence Party, gaining 76% of the vote.

    Zambians had tired of Kaunda’s statist inefficiencies, which had seen debt levels rise above $7-billion, at the time the highest debt-per-capita level worldwide, and copper production, on which its foreign earnings were almost totally dependent, drop to a third of their 1972 peak of 720,000 tons.

    Although the population…

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