Zambia is facing a debt crisis-Fundanga

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Former Bank of Zambia Governor Dr Caleb Fundanga has stated that the country’s public debt has now reached crisis levels.

And respected Economist Mr Muna Hantuba has predicted that Zambia may not be in a position to pay back the first Eurobond of US$750 million when it falls due in 2022.

Dr Fundanga noted that Zambia will face significant fiscal pressure between 2022 and 2027 as the Eurobonds matures.

He also noted that the ratio of external debt service to revenue is projected to increase and breach the sustainable threshold of 20 percent between 2022-2027 from 9 percent on average from 2015-2021.

Dr Fundanga was speaking at a public discussion organised by the Economics Association of Zambia under theme, ‘Zambia Debt Situation: Back to HIPC?’

“Based on the debt sustainability analysis conducted jointly by the World Bank and IMF in May 2015, Zambia’s risk of external debt distress was considered to be moderate. However, recent debt sustainability analysis conducted by the IMF and the World Bank indicate that Zambia has a high risk of external debt distress, emanating from the Eurobonds maturing between 2022 and 2027,” Dr Fundanga stated.

He said Zambia is currently a medium performer on the Country Policy and Institutional Assessment Score (CPIA) of 3.3 but warned that further slippages in policies will result in the country being classified as a weak performer under the debt sustainability framework.

Dr Fundanga advised that Zambia should continue implementing growth oriented policies which includes support to the export sector beyond copper.

He also suggested that Zambia should explore cheaper sources of finance and maximising borrowing from concessional and semi-concessional sources while moderating commercial borrowing.

Dr Fundanga said the Zambian government must undertake fiscal consolidation to avoid rapid accumulation of debt as current debt levels are unsustainable.

Meanwhile, Economist Mr Muna Hantuba has predicted that Zambia may not be in a position to pay back the first Eurobond of US$750 million when it falls due in 2022.

Mr Hantuba said Zambia may fall to redeem the debt because the country has not yet gathered sufficient prowess to deal with debt the way debt must be dealt with.

“If you borrow to build a road, to build a bridge or a school and the bill of quantity is a million dollars, there are two ways to do that. Borrow that 1 million dollars and deploy it, conclude it within time, let it become active and let the private sector get engaged, at the end of the day, there is social economic development that goes but if out of the targeted 1 million dollars, you add in 500,000 because there some guys who are queening up for rent seeking, it means that the cost of the project has gone up by 50 percent. In private sector, the moment you move on those parameters, you will fail to pay back the debt,” he said.

He added, “Or you can do the easier one which is receive the million dollars but you digress the project by sending inky 500,000 dollars, the other 500, 000 dollars has to go to these rent seekers because they have got the right access to the bids and tenders. Then you have got a project that is 50 percent done, if it’s a road, it’s the sort you drive, it’s a 1,000 KMs by the time you come back, it would have developed potholes but unfortunately, irrespective of how much of that money was correctly deployed, it must be paid back when it is time to pay back and then you will have to go back to the private sector and tax them.”

Mr Hantuba observed that domestic borrowing has been abused to collect money and enable a certain system.

“I wish I could ask someone how the current system is working. I wish I could ask how government is financing its activities, let alone paying debts. At this moment in time, I know there is a large deficit, I hope someone can tell me how it is being financed,” Mr Hantuba said.

“When I was doing Economics many years ago, we used to call it printing money, I thought there was actually a printing machine at the Central Bank where they were churning out it out but subsequently I learnt that it is just a mechanism of using some idle cash, pump it in and lend it to Government and hope Government will pay one day at its own terms. Is the Central Bank independent? Maybe it is, my suspicion is that if it were, it would not allow a scenario where government borrows as it requires with its own terms and then come again and say we need more and you do the same.

Mr Hantuba suggested that government considers longer dated treasury bills and longer term government bonds of around 20-25 years.

“Don’t be corrupt because corruption is expensive. Don’t misapply resources, stick to the budget. If your 2017 budget says you are not going about constitution, don’t do it. If your 2017 budget does not say about appointing of extra cabinet, don’t do it. That’s what private sector hopes government won’t do. Private sector does not expect Ministry of Justice to announce expenditure of 2 million (whatever the figure is) to ask people where we should be in court or not.

Zambia’s debt that was standing at US$ 9.44 billion as at September 2016, representing US$ 46.9 percent of GDP was made up of US$ 6.7 billion of external debt and US$ 2.74 billion in domestic debt.

The country’s external debt has escalated by 240 percent in the five-year period between 2011 and 2016 from US$ 1.97 billion in 2011 to the current US$ 6.7 billion in 2016.

54 COMMENTS

    • +12
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      Now wait for Father Bwalya to dismiss Dr Caleb Fundanga’s point.
      question is why do people fail to speak out when they are part of the team chewing the money? Dr Fundanga was one of the people during the time of borrowing but the moment the job ended, he is out saying this crap. Yes truely the Zambian economy is in bad shape but Dr Caleb Fundanga you are part causers of this problem. You learned people of Zambia are the big problems as to why Zambia is in this bad shape. You go for studies only with the aim to get paid more instead of working for the good of the nation. See around how people are suffering while you pass driving GRZ 4WD cars with you fat necks and big pot belies

    • +4
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      @Masalamuso Is this something we need Terrible or Father Bwalya to tell us? What do you expect to happen when you borrow kaloba to pay kaloba! Surely something has to give! The strategy is each Finance Minister who comes along re-schedules the loan and the funder will pay him (Minister) for giving them (funders) business. Its abut 1% cut sounds low? No its 1% of US$1b or US$10m is simple language. I wouldn’t be surprised if a UPND or MMD Minister came in a did the same!

    • +11
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      Consistently i have stood tall on disapproving plans of dashing to IMF for more debt contraction or indeed over borrowing from the local market. That is not how you create wealth or grow economies. There are many Lessons Learned cases in Economic History of Developing nations we cannot afford to ignore in our predicament. Stop this adverse debt trap. The model of just building debt portfolios must be stopped right now. As the country’s Debt Ratio is now alarming. We have nothing of leverage. Today our Debt Ratio percentage is very low. A low DR percentage is not good as it means that the country is less dependent on its leverage if there is any. We can grow this economy with low tax system. All need is to re-organize, restructure and secure taxation systems to capture all sectors. Arrest…

    • +11
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      Time to arrest revenue leakages and the menace of corruption. Time for a big picture push. As a Generation we can turn around our country on a growth trajectory with equitable wealth and opportunities for all. We are a small population with all levers of power to give Zambia a good economic lifeline. Lets do it for the sake of our children and posterity. The culture of everyone wanting to get rich, opulent and powerful without works is not only cosmetic,but extremely dangerous.

    • +2
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      Ok, we have inkongole, so what? The so called Economists are always pointing out the problems but never the solution! How did they expect the GRZ to develop the country? Fundanga was the Bank governor in the MMD government which was hoarding money in reserves while not repairing schools, building hospitals and mending roads. Now, this Hantuba is even difficult to understand. He dies not understand what ‘printing money’ is?

    • +3
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      The current BoZ under Dr Kalyaya is doing much better than any b4. They stabilised economy amidst drought & falling commodity prices. It’s so easy to condemn & expect every one else to be perfect but we all need to look @ ourselves even those pointing fingers. We all need to change we cant be corrupt but be quick to condemn others. We can’t drive on good roads but @ the same time condemn the work. We all need to contribute to making Zambia a better place by being economically active & guiding GRZ positvely. God is control!

    • +3
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      I heard Dr Caleb Fundanga saying the same things that he is saying now over 20 years ago in the 80’s. He is now redundant to be honest. Is there no dynamism in economics? Zambia has moved on but the old Doc is still in the same place. I do not want to believe that Zambia has not moved on. Doc go to sleep!

    • +5
      -5
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      This debt was created by the dead man and chikwanda. St.upid Fundanga were have you been when that grade 7 drop out was borrowing heavely. Some f00ls are blaming RB. He led us for three years and still left reserves which the grade 7 drop out squandered by rebasing and then resolted to kaloba. He the ran away leaving us this problem

    • +5
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      This debt was created by the dead man and chikwanda. St.upid Fundanga were have you been when that grade 7 drop out was borrowing heavely. Some f00ls are blaming RB. He led us for three years and still left reserves which the grade 7 drop out squandered by rebasing and then resolted to kaloba. He the ran away leaving us this problem

    • +5
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      Where is that mad chap Jonathan who likes to post gibberish…look at the way the former Bank Governor is explaining issues. He is not simply squeezing every “big” word and abbrev. from a financial text book.

    • +3
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      @House fly Dr Fundanga left zero Nkongole under Mwanawasa and partly RB. Please argue with knowledge

    • +1
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      House Fly:
      Dr Fundanga left BoZ in 2011 when PF took over and debt was at its lowest. Do not blame him for the current debt level, as he was out of office when the debt accumulated to where it is today. He has the locus standi to speak on this.

  1. +9
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    Typical African thinking,just think of today future generations dont matter aslong I have a good time.Very sad.

  2. +9
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    Chikwanda has done it again! What a legacy for Chikwanda! He has gone quiet with his blo.ody loot and it is the stup!d Zambians to pick up the pieces. Zambians were warned but closed their ears lest they should hear. We have not started yet. Tough times ahead. Brace for impact! Congratulations!

  3. +7
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    Why should Given Lubinda a mere diploma holder be at ministry of justice when we have alot of learned lawyers in Zambia Edgar Lungu wants yes stupid people like Lubinda around him that’s why the country is in a mess.

    • +5
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      Lazy likes to surround himself with empty tins as it makes him look smart although he is also one!!

  4. +5
    -5
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    Very interesting and an eye opener. Not the blablas we’ve been subjected to by certain corners. Let’s not continue blaming Chikwanda, but instead find ways to sort out the mess as per suggestions by these two noble sons of our nation.

    • +11
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      @Mbanje khakis:
      We have been telling you PFCadres about this for many years and you never listened…you even went ahead and stole the election for an id.iot without a Vision.
      A few people stole the money, i.e. Chikwanda and Lungu stole most of it, so why are you saying we should not blame Chikwanda who refused to listen and called people lunatics when it was him who is lunatic. Why should we sorting out problems created deliberately by crooks who are still alive. Let us kill them or at least put them in jail while we find those solutions otherwise Mutati will also do the same and steal again!

    • +2
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      Yes.There were warnings from many people that we were slipping into serious debt.These were ignored or rubbished as the powers that be did not want to consider what the others said. How do we blame them now?
      Once you come out of government you are treated as an enemy even if you are patriotic. Its time we treated each other with respect and respect the human resource we ourselves have produced. Am sure these sons would be available to suggest solutions to our government if requested. No problem exists without solutions.

  5. +8
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    The ICC debacle must be stopped. its simply unconscionable for Government to use 2 million for an activity that will not improve people’s’ livelihoods. The argument that it was budgeted for leaves a bad taste in one’s mouth as it clearly shows that Government has got its priorities all wrong. I can think of so many ways that money could be used.

    • +4
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      Consultations have already began…GRZ cheques have already cleared into Lubinda’s proxy Event Organizing firm.

  6. +11
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    Am surprised at our ignorance. Dr Fundanga was dismissed and is not part of the problem.Please be factual. PF has brought about high debt and is now taxiing its citizens beyond what they can bear.
    Proposed Electricity Tariff increases,Motor Car Fines and cumulative 133% taxes are punitive. In all fairness Dr Fundanga and his team left heathy reserves at Bank of
    Zambia and a healthier economy and an excellent fiscal policy.The country is in crisis .
    Newly recruited health personnel have not been paid for five month’s and some have deserted their stations

  7. +8
    -1
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    During Rupiah Banda they were saying Zambia had B+ Credit reports meaning they could borrow the money at a low rate interest. All these were left by Mwanawasa. But Rupiah didn’t utilize the opportunity to show the people that he can develop or implement development projects which people needed. Instead he was busy with his family in financial scandals., and Fundanga didn’t implement anything at the Central Bank till he was fired.
    When Sata came in he over implement the projects. The problem he allowed his followers to steal too much money during the awarding of so called contracts.

  8. +5
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    Dr Fundanga when he was Governor for the Bank of Zambia during the Mwanawasa Government is on record of supporting and encouraging the so called Investors to externalise the profits as long as they had paid the meagre taxes to ZRA…Now that he is out he is accusing the Government for borrowing when he failed to make hay when it was still shinning…I wonder how people fail to see problems when they are in the system…

  9. +3
    -1
    vote

    Brothers & sister, ladies and gentlemen. These are signs of the coming of the Lord Jesus Christ. Believe me ,no one is going to solve this problems but I don’t mean to be lazy that food will fall from heaven like manna no. I believe in hard working. The world is falling apart!(just look around what is happening in the world) It is time for true Christians to wake up.

    The end is near.

  10. +1
    -4
    vote

    If the PF didn’t borrow so much, we could’ve stopped thinking. What needs to be done is to quicken the response to these developments. It’s now possible to drive from Kitwe to Luwingu and Mporokoso and arrive the same day, isn’t that beautiful? Instead of watching earth-moving equipment pass by, start Kantemba and sell water to the chinese and muntu workers. Make some money and grow your business, that’s what the PF want. We need to grow the GDP, and good infrastructure is the key. Goods are now able to move to markets easily. Don’t leave Luwingu and come to look to K600 jobs from the Chinese, just extend your fields and grow more beans, it will now not rot in the fields.

    • +3
      -2
      vote

      What we need is how to the debt as government. It’s sad to see villagers buying maize meal when they supposed to be the ones selling it. Politicking must be replaced with pragmatism.

  11. +4
    -3
    vote

    Between 20% and 25% and 33% and 46.8%, there are big differences. Part of the problem is the schools of thought. The other school is applying 33% and another school of thought is applying 20%. Of course, to a lay person, the lower the debt better for the national economy. But in real terms, we would rather borrow than lose on fundamentals, including peace and stability. Fundamentals for peace and stability here is referring to basic commodities for households and industries, including electric power, petroleum products, staple foods, passable bridges and road networks, etc. Some of us belong to the school of thought that can borrow in a sustainable manner. Growing the economy is necessary and in certain periods, the curve will be above or below the fundamental.

    • +3
      -3
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      Here we go – this Witch Doctor talking sh.it again!
      Whatever you’re trying to say here is not making sense – did you forget to take your medication this morning?

    • +3
      0
      vote

      This is the problem. This analysis is too academic. We think too much and end up missing the basics for being production. We like big words and analytical approaches and end up missing how a needle is manufactured. Even a box of matches is a night mare to manufacture in this country. We have so much Mukula tree but we are just busy stopping smuggling of the tree rather than creating an avenue for this tree to be useful in this country. We think too much and we end creating a lot of problems for ourselves even where and when there are no problems. Let us get back to basics please.

  12. +5
    -4
    vote

    You tell us all this now Dr Fundanga, but where was your voice when this money was being borrowed like sweeties?

    • +7
      -1
      vote

      @Patriot, you need to apply common sense when you want to make an argument or comment and you clearly aren’t doing so.
      Dr Fundanga was not in any position to stop the PF Govt against those borrowings and was in fact pushed out of the system for that very reason.
      So what you are saying doesn’t make sense whatsoever. It’s people like you who did nothing when you had 2 opportunities to stop the rot by PF but looked away without doing anything when Rupiah Banda was smearing his sh.it and helped the drunkard to steal the election.

  13. +6
    0
    vote

    Magande is the great asset for this country He was to be the President of this country and the nation was advised by Mwanawasa the late through his wife Moreen But Zambians brought in Lupia the plunder just because Magande is a Tonga Iam telling you this Nation will in big problem We are a short sighted generation …………….

  14. +3
    0
    vote

    It is too expensive to be productive right now and load shedding is back next month. All this means less taxes for ZRA. We are now in the eye of the vortex.

  15. +3
    0
    vote

    The problem I have in my beloved country is that, we have so many learned people who articulate issues outside the inner cycles. When there are within the inner cycles, you seldom hear them analyse issues in this manner. Brilliant analysis from Economists. Where are the Engineers, Agriculturists, Miners, Metal Fabricators, Plumbers and other production based professionals? Economists like and enjoy analysis the paper performance of economies. They dont know how to manufacture or create things to improve economic performance. They usually wait for other sectors to produce then they analyse the levels of improvement in the economy. They have done their part so let all the other sectors do there part.

    • vote

      @ Miya, as Prof Lumumba has put it, those with great ideas have no real power to change anything and those with power completely have no ideas on what needs to be done. The electorate in Africa has a higher affinity for those without ideas. A good example was the choice we had between Magande and Bwezani. The masses went for Bwezani on account of tribe. In the end, the clean water pond Mwanawasa left was reduced to a sewer pond full of corrupt deals. We removed Bwezani and replaced him with what looked like a promising Sata but it just got worse. Bwezani found his way back and formed a puppet government, thanks to the Nigerian dollars. Bwezani could afford to bring a ship from Turkey to supply power to Zambia at a cost of over $18,000,000 per month. The Zambian pond is now oozing…

    • vote

      You’ve commented well except the tribe issue. This is not true in the Bwezani election. It was more of continuation of party.Zambia’s economic history is centered on the Copperbelt which was a melting point for neighboring country immigrants and also melting point for tribes. Zambia is one country where cross tribal marriage has been the norm from way back the 50’s.The tribe issue only features for rural brought up people and naturally at provincial towns.Being largely urbanized way back in the 60’s it was never never an issue.Visit the heart of Copperbelt you will find this to be true,therefore tribe in the Kaunda era was never that strong. Someone is trying to resurrect an institution that is on its way out.The issue is,current government cannot listen and did not listen to sound…

  16. +1
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    vote

    Borrowing for development is not a bad thing. The problem with this GRZ is the sheer wastage and misplaced priorities. Spending 2million for instance on the so called ICC consultation is a misplaced priority! Creating more ministries which can be handled by a department in already existing ministries is another misplaced priority! The good news is that its not too late yet. Those in GRZ must listen and put a stop to contracting more debts. You are now making millions each month from toll gates, utilise that money to rehabilitate roads and other projects. The GRZ can go further by cutting expenditure on its ministers,too too much luxuries at the expense of the nation and majority of people! Money is there in Zambia but how to prioritise its use..

  17. +4
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    PF will be remembered for bringing back HIPC days and committing atrocities nothing else?

  18. +2
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    Now can I hear someone to present a private members bill to de register EAZ for saying that zambia is in debt. Here we go, MP for Kasama! Here is another association for you to work on.

  19. +3
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    vote

    Fundanga is being blamed for a problem he didn’t create and was fired when PF got to power. The problem with Boma is even in a crisis these people won’t be brought to the table. They want the circle around themselves, so that means they will carry on. Just make a plan, and never depend on them. Fin stated thaf the debt was $7bn, but the above shows closer to $10bn. We keep talking about how important infrastructure is, thats all well and good if you can see a real rate if return and you have liquidity. Therefore no need to go to the IMF. Yet its been spent

  20. +2
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    now when nez told you the exact same thing many years ago, the PF called me crazy and threw all sorts of insults. Am i now in my rights to call PF dogs? do you see why i call you f00lish dogs?

  21. +3
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    Surprising PF cadres have not commented on this article. Could this explain why there was nobody in PF to be Finance minister and all officials in this ministry are not PF kaponyas incapable to comprehend simple basic economics of consumption = income generation. Outside this is theft and plunder.

  22. +3
    0
    vote

    No Analytical brains in this bunch! You cannot expect to solve a problem with the same minds that created it (Albert Einstein). In progressive countries, such a government would have been fired and new elections called! By the time Chagwa is done, our debt will be somewhere near $20 billion!!

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