the-IMF1
By Kalima Nkonde

There have been heated debates on whether the PF administration has mismanaged the economy or not. The Finance Minister, Mr. Alexander Chikwanda recently admitted in Parliament that the economy was in bad shape but attributed the challenges to external factors , when answering a question from Mr. 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. The challenges which arise from the weakness in the global economy,” Mr. Chikwanda said.

Many experts disagree with Mr. Chikwanda’s attribution of the poor economy to global factors only. And among them is the former Finance Minister Dr. Situmbeko Musokotwane who predicted that Zambia will need the IMF sooner rather than later given the state of economy. He also observed in his November, 2015 paper that economic mismanagement was main cause of the problems that Zambia was facing.

“Even without copper related problems, Zambia would still have faced serious economic and foreign exchange crisis. They should not blame everything on drought and low copper prices. A global economic crisis which resulted in even lower copper prices than they are today occurred also between 2008 and 2009 but things did not deteriorate as they have done this year. Concrete measures then were taken that minimized the negative effects of the crisis”, he said.

The Finance Minister, Mr. Alexander Chikwanda further announced on 24 February,2016 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.
On the 3rd March,2016, Secretary to the Treasury, Fedson Yamba confirmed that the IMF Mission will be in Zambia from 9th March,2016 to 18th March,2016. He added : “ During the mission, the IMF will not only hear our objectives for the anticipated program, but also its timing, our submissions on some proposed key elements in the program,” Mr.Yamba said.

Zambia’s economic performance under PF

I would like to highlight key economic indicators and other statistics including those relating to the exchange rate, inflation, fiscal deficit, trade deficit and public debt which explain why we are going to the IMF. I have found the statistics mind boggling as they are all going down south and above 100%! I am wondering : Is Zambia a “100% economy” and Mr. Alexander Chikwanda a “100% Finance Minister” where all adverse changes have to be over 100%? Even Copper prices have not dropped by 100% but between 25% -30%!

Below are the ten selected key statistics that should convince anyone with some minimum education and knowledge that indeed we have become an economic basket case instead of being a bread basket economy:

1. 800% increase in external debt ceiling from K20 billion in 2011 to K160 billion in 2016
2. 131% increase in domestic debt ceiling from K13 billion to K30 billion
3. 433% increase in external debt from $1.2billion in 2011 to $6.4 billion in 2016
4. 134% depreciation in the value of the kwacha from K4.86 in 2011 to K11.40 in 2016
5. 247% increase in inflation from 6.6% in,2012 to 22.9% in January, 2016
6. 135% increase in fiscal deficit above budget from K8.5 billion to K20 billion in 2015
7. 147% increase in trade deficit from $383.4million in 2014 to $945.8million in 2015
8. 130% increase in average bank lending interest rates from 12.15% in 2012 to 30% in 2016
9. 157% increase of in the staple food – mealie meal from average of K37 in 2011 to about K95 in 2016
10. 200% increase in domestic electricity tariffs ( this was reversed by President Lungu after public outcry)

The interpretation of the above to a lay person is as follows: government is having cashflow problems and struggling to pay its bills such as salaries, fuel, suppliers and servicing loans etc. In addition, most Zambians are jobless, the cost of living is high, poverty levels have increased, businesses’ production levels have gone down and the general, economic activity is low thus affecting exports, the cost of borrowing for businesses and households is prohibitive and investor confidence is low. This is the meaning of Finance Minister’s statement, “there are challenges in the economy”. The government has failed to address these problems on their own thus it needs to outsource economic management to the International Monetary Fund.

The truth of the matter is that by going for an IMF bail out, it means that in some way , Zambia has lost its 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.

Why Zambia will get a bad deal from IMF

In the light of the above statistics, the government’s decision to ask IMF for assistance is a positive one and may come as a relief to the country and investors. However, the timing is wrong in that it has come a bit late when the damage has already been done. At the moment our economy is so weak that we really have lost the bargaining power as our options are very limited.

In June, 2014, Zambia approached IMF for a program when our economy was relatively strong. At that time, it is the the same, Mr. Alexander Chikwanda, who is at the forefront of the current program, who was dragging his feet and resisted the IMF program. He is on record as having said that the IMF sometimes makes things worse! The man’s credibility as an economic manager is questionable in my books purely based on his track record! The trend of the country’s economy now is similar to what it was 42 years ago in 1974 when he was a finance minister. The economy is bleeding and when we warned about the same two years ago, he called all of us lunatics! But the above statistics surely show that the chickens have come home to roost under his watch! So who is fooling who?

I also believe that apart from poor timing of IMF program, we are unlikely to get a good deal because I am not sure that we have assembled a crack team of negotiators who are well educated, experienced, exposed and are well respected in the international financial circles including by the IMF themselves. Apart from Bank Governor Denny Kalyalya, I cannot think of any credible person who is exposed and will be confident enough to argue with the IMF guys! I would have expected the likes of Dr. Caleb Fundanga, Dr. Situmbeko Musokwane, and Mr. Ng’andu Magande etc to have been involved.The composition of the team for negotiations with IMF should have been nationalistic based rather than partisan! The economy is affecting everybody regardless of political affiliation and we should have involved some of our best economic minds in negotiations with IMF like Ghana did; even those who are not in government!

President Lungu needs to show leadership on economy

The statistics above clearly show an economy in serious trouble and if I were President, I would be spending sleepless nights in trying to figure out what to do in the short term in order to inspire hope and make the people see the proverbial light at the end of the tunnel. Dr. Kenneth Kaunda was very good at making Zambians believe better days are coming amidst economic crisis. True leadership is demonstrated during a crisis.

In all honest, there must be a lot Zambians like me whose perception of the future is bleak because we are not being told the road map; there is no concrete and coherent plan on how the economy is going to be revived by the PF administration even if they win on August 11, 2016 .The statements we get are disjointed and uncoordinated! In my view, the best campaign strategy for President Lungu is to laser focus on economy. He can do this through dialogue with all stakeholders especially the private sector. He should be seen to be making bold decisions like Tanzanian President John Magufuli has been doing. Magufuli has inspired Tanzanians and Africans alike.

The current strategy by President Lungu of keeping quiet and over emphasizing the past in form of the so called unprecedented infrastructure development at the expense of a strategy for economic recovery is risky to his Presidency. Although Mr. Lungu and the likes of Mr. Yamfwa Mukanga believe they have already won the 2016 election, the PF victory is not necessarily a fait accompli. The economy may just turn out to be their achilles’ heel. The President only mentions the economy as a by the way. He gives the impression he is not interested in it and he is uncomfortable talking about it! He has delegated statements on economy to juniors instead of taking leadership on it and inspiring hope! I gave him free consultancy services on the economy and communications strategy some months ago. I wrote two articles: “Is the economy stupid, Mr. President” and “President Lungu needs to change his communications strategy.”

Conclusion

In conclusion, let me make it clear that I have not been against infrastructure development or against borrowing as some of my critics seem to suggest. I have been against the fast track and not well thought out and sequentially implemented infrastructure development so as to avoid cost overruns and promotion of corruption. The majority of current infrastructure projects did not follow project management principles and appraisal processes .They where motivated by populism rather than economic imperatives. PF priorities were wrong. The RDA has confirmed this in a report to President Lungu on cost overruns.

“Your excellency, RDA is fully aware of the increasing road construction costs and instigated measures aimed at arresting the situation from worsening. Some variations, however, have been issued on instructions from government leadership, arising from the need to carry out urgent government projects. Owing to the urgency with which government wanted to commence the works, Phase 1 of the Link Zambia 8000 programme had commenced on a design and build basis. This implied that detailed designs were not in place by the time of tendering. Therefore, the majority of variation order under the Link Zambia 8000 programme have been attributed to this, ” The RDA report said as reported by the Post Newspaper of 17 November,2015.

In regard to borrowing, I am not against borrowing per se but excessive borrowing it cause liquidity problems it is now due adverse exchange rate differences. The IMF and the World Bank had warned Zambia about excessive borrowing especially from the international Capital market. And so I am in good company in terms of reading the economic dangers of excessive borrowing, analyzing the economy and forecasting economic pitfalls before they happen which appears to be a scarce commodity in the PF administration!

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 before returning home two years ago.

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33 COMMENTS

  1. Nicely written piece … it is for the same reasons that I mentioned earlier last year that the President needed to replace ABC with someone with a different approach to trickle down economics. What is needed is thorough planning.

    Now overall, the fundamentals of our economy are very strong and Quantitative Easing (QE) if properly applied can turn this economy in less than three months of implementation. The IMF is not the answer, the answer is in robust restructuring.

    For instance, current inflation is attributed to two main items: power shortages and food inflation. The two are very reversible. The first one by using alternative energy such as solar and wind. GRZ through IDC can mass import solar panels and add 1,000 MW within three months.

    Food inflation can be reversed in…

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    • Inflation due to food can be reversed using different agro strategies such as intensive irrigation as opposed to reliance on rain patterns. It takes three month from planting to harvesting most cash crops.

      So, that’s another three months … however, Lungu has something going well for him at the moment. The smart people of the Zambian Enterprise can see the current infra-structure development going on around the country and as tax payers reckon that their money is at work in some sort of ways.

      This alone is what me differ with this author when he mentions infra-structure as ECL’s achilles heel. ECL will not only be the next Commander In Chief but also the first Thumper In Chief since FTJ.

      This election will retire so many wanna bes than any in our history. Currently, the…

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    • Consistently as a Zambian among the many with expert judgement, I regret this decision against which i have openly said it that it’s suicide to have any appetite for IMF economic package. Ba ABC with his Swedish earned Ecobomic Histrory credentials has lamentably failed this country. This is a reckless betrayal of the poor people of Zambia with unparalleled consequences God forbid. Technically it’s the most dangerous act of high level complicity in a systematic hostile take over of our country’s economic destiny. Had GRZ opened a broad consultation with Zambian experts around the world, we could have guided them on best options and support sources. No developing country I know of being on IMF prescription has ever posted measurable success.

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    • While we maintain ECL, it’s time to change the economic school of thought at our national economic ministry. With vast years of Government or public affairs experience armed with Economic History from an elites school, we expected ba ABC to know the agenda and spirit of IMF better. Post Inauguration, President Lungu should overhaul MoFNP reconstitution it with proper economic and Financial Engineering experts. We are not worse off, yet with a real urgent case to reset for the best at MoFNP first. There is a reason why “Lessons Learned” is a critical component of planning and project execution. Lets learn from the history of our country and other developing economies.

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    • You can’t isolate Chikwanda alone and say he has failed the economy, it doesn’t work like that! Totally agree with the writer on the point of honest communication to the Zambian people. At a time when leadership and guidance is needed on economic matters the most influential man in the land remains mute..anyway, for how long can we continue sweeping dirt under the carpet?

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    • You cant say we ”we maintain ECL and get rid of ABC” ba Senior Citizen.ECL is as blank as ABC, both need to be Booted out.

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    • I cant believe some people who still say “we maintain Edgar!!”. Are you for real? Are you blinded by the usual tribal or regional politics or you genuinely want to see a better Zambia for all? If President Lungu had a slight clue on how bad the country’s economy is, he would have fired lots of people from cabinet a long time ago. The truth is, he doesnt have a clue on what to do. Thats why Zambia is in this mess.

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    • Kalima Nkonde, this is a brilliant article. No need to add anything further. The sad part is that our leaders will ignore it and pretend not to have read it. What a sick country. Over 50% of Zambia’s problems are self-inflicted; poor leadership!!

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    • @Senior Cirizen. You do not kill a dog by cutting of its tail, you cut off the head. The whole system has failed, and ECL is its head. Get ECL out of SH, and all his failures will go with him. Keep him, and all; his failures stay with him. And erode the economy further.

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    • Fantastically articulated!
      Otherwise, on 11th August vote wisely & making sure that PF bandits whilst in the economic turmoil of their own pathetic failures, are casted out.
      Lungu (2014) said, “I have no vision of my own” whatsoever but due to the lifting of hands by Pudsey Faces (PF cadres mediocrity). This was during the “panga platter” butchering in Kabwe.
      PF is in kerfuffle due to their ever unimpressive empty dribble!
      PF is living in denial of their far-fetched economic bundles fueled by paradox bundles.
      1month 3 weeks left for PF bandits whilst the infrastructure glib is questionable.
      The Skeleton Key
      ~206~

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    • Three months for irrigation and 1000MW of electricity? Wow? Sounds like you gave MCS the advice “we can develop zambia in 90 days.” Be real. What are you going to grow? How quick do you connect these panels and syncronise their 1000MW of electricity to the existing grid? Come on! I like the thinking though!

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  2. Only the best brain will know & consult other best brains. Average brains see brilliant brains as an insult to their retarded development. To expect Kadansa & his senile squander to consult Dr Musokotwane, Fundanga or Magande is such a gigantic ask for these low, low “leaders”.

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    • @Itizi turu: thanks for putting that point so well. Just to add, most PF ministers and Lungu would see an opportunity to meet the IMF as time for allowances and making money . Soon they will have to travel to US and rake in allowances. It is not about the ability to negotiate and having agenda targets to achieve. That’s how Zambia is badly led. That’s why
      #ChagwaMustFall

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  3. Let them vote for PF & continue with the current state of affairs because Zambians are so washed up with tribe. We gave Lungu an opportunity to govern this country but he has failed. Dull people by default continue to say that he needs more time, it’s global, no one is to blame etc. I for one am voting for a person that deserves an opportunity to bring back sanity in Zambia. Those that are in love with the current poverty will vote for it on 08/11.

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    • Sadly, those that support ECL appear to suggest the reason he should continue is because he is a humble leader. Really?

      More like clueless, if you asked me.

      He has to come out and articulate his economic agenda. He can’t stay mute in the midst of this suffering among the poor.

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    • #Cha Cha Cha
      I quote; ‘He has to come out and articulate his economic agenda. He can’t stay mute in the midst of this suffering among the poor’.

      Sorry to disappoint you dear, your Chagwa can’t, as he is clueless on issues pertaining to the economic. Even economic terms contained in the brilliant article above makes him treble in his shoes because it is not part of his vocabulary. Have ever heard him articulate economic issues?

      But what is even more painful is that the Chagwa has no guts to fire the fellow clueless ABC, whose only consistence is borrowing and more borrowing!!

      Another mandate for PF is as bad as a death penalty on the entire Zambian populous!

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  4. The argument that climate change and external shocks have little to do with the economic challenges in the country is misleading. First, energy. What is the total electricity bill? What is the total fuel bill? What is the effect of the energy deficit on industrial output? The answer is: very high. Second, infrastructure. It was wrong to bury the railway line; to ground the National Airline; to pothole the road network; to abandon health services improvement; to remain at two public universities level 50 years after independence. If some of the ground officers are actually pilfering and stealing public funds, then all citizens need to rise to the occasion and call for the arrest of erring ground officers in implementation.

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    • @Makasa: you must be a very dull person. The answer to “What is the fuel bill?” has to be a number or an amount and not “very high”. It looks like you are an agent of obfuscation. I bet your sponsors, despite running govt for 5 years, do not know the answers themselves. That’s why
      #ChagwaMustFall

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    • @ Makasa

      Can you explain why our new Colonial power (China) has lowered interest rate to less than 4% and current bank lending rates in Zambia have gone up to 34%? To stimulate growth of local economy?

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  5. The IMF is an organisation which deals with the Monetary(Economic part) part of an investment( Zambia in this case) and not necessarily the Fiscal(accounting part).if the monetary part is still strong indeed, you will rarely see IMF coming! When you see IMF coming it means the monetary part of the investment( Zambia) isnot health. World bank in 2013 were the first to send warning signals but these were ignored.
    Its the monetary part IMF is coming to address and you will hear the outcome- it will be based of four Economic forces namely:
    Retirement
    Taxation
    Debt, and finally
    Inflation.
    The Fiscal ( accounting) part is basically about countering the above forces. And these counter forces are:
    Income pitted against retirement . is there a balance in the investment called…

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  6. I am almost relived to hear Senior Citizen and BR Mumba for a change saying something critical about PF/Lungu’s drunken approach to serious economic challenges. I never thought a day would come when this will happen, but it has happened confirming that the PF is even more rotten at the core than is perceived on the surface.

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  7. Its truly laughable reading some comments above yes Fossil Chikwanda is an issue but he is only part of the problem the scary part is without him all those figure would have been even worse than they are….when has the reckless Lazy Bum Lungu or any of his empty tins articulated economic issues without U-turning. That’s how bad the situation is.
    Wake up!!

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  8. We are in dire straits. Very poorly managed economics run by ED whose appetite for being President is not matched by skill set, knowledge, ability to cross aisles if necessary for the sake of improving the human resources a President has at his disposal. Captain, you have sunk your economic boat and do not have the vision or desire to raise it when set against a looming election.

    Bringing in a new crew of experts will challenge you to consider actions that will impact the only thing you appear to care about. Winning elections by any means necessary. What does it take for you to accept responsibility for what you continually say you are ‘blameless’ for?

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    • Aphiri Anabwela
      I don’t see anything being worked out apart from maybe laying the groundwork for things to be implemented after elections.Lungu cant take the risk of becoming more unpopular as we head for elections.

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  9. at this rate i wish PF win. That way they can swim in their own shi.t and the people who vote for them start eating grass.
    HH should adopt the mid set of if i win ok, If i dont less stress.

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  10. Where did the writer get the statistics figures, so we can be able to refer to the sources?

    My quick assessment tells me this writer is an alarmist to say the least! The best way to measure Zambia’s economic performance is comparing to other currencies!

    1. South Africa Rand to Dollar 2011 January (stanlib) = R6.6
    2. South Africa Rand to Dollar 2016 March = R15.2
    depreciation = 130%

    1. Zambias 2011 = K4.86
    2 Zambia 2016 = K11.4
    deprcistaion = 134%

    From my calculations, we almost even with South Africa??? So, some of these statistics figures are not as bad or accurate as they are made to appear!

    Devil is in the details!!

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    • The only problem with your reasoning is you forgot to factor in the fact that Zambia is nothing but a large shopping mall for SA goods and Zambia pays manufacturing workers in SA.

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  11. Very insightful article. Seems ABC has beat his own record. Humble as our president is said to be, he lacks a solid vision for our country. I hope they get to read this and that the future governments get to learn vital lessons from how PF are performing.

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  12. Indeed the team of Chikwanda, Yamba, Kalyalya(exception), Msiska, Simumba, N’gandu, Ps Budget, Ps Finance can ever much the crack team of yesteryear of Kalumba, Mweene, Chibanda, Mwanza, Singogo, Kalyalaya who where genius at setting the tempo….by the time LPM was entering state House Magande had a reduced debt portfolio, little external shocks as Zambia had qualified to HIPIC! All that hard work has been undone in under three years incredible, the men who did the donkey work discarded or forgotten and never consulted….other countries grow on their knowledge base we discarded them….I hope in the next regime we shall seriously reach out and bring back sanity to the table…

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  13. Dear 4.1: The expression “very high” is referring to the cost of importing fuel. If the country was an oil producing country, the situation would have been more favorable than it is at the moment. You know it but you just want to argue with me.
    Dear 4.2: Interest rates (IR) increased as a function of the scale economic output. To the extent that in China, balance of trade is favorable, there is no reason why IR must be higher than in Zambia where the balance of trade is unfavorable. To achieve surplus, China diversified the economy: high output in tourism, agriculture, manufacturing, skills, services, all combined drove risks to low level of one digit. Zambia needs to spring back to zero digit. But that is only possible if you face facts and not speculative sentiment alone.

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  14. @niggs nature. Your rebuttal of article is superficial and you have just exposed ignorance. Economic and financial analysis can based on time series, international bechmarks or similar nations. This article is based on time series and your suggestion of RSA is in appropriate. Besides, you just quote exchange rate! How about interest rates, inflation, interest rates etc Also do your own research to verify figures quoted rather than expose your superficiality. Nothing alarmist about article!

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