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.”
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.