Why President Lungu and Zambians resisting the IMF aid Package – An Analysis (Part 2)

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President Edgar Lungu held meeting with An International Monetary Fund (IMF) team led by Tsidi Tsikata who is division chief African department in Washingston and Mr Tobis Nybo Rasmussen IMF Resident Representative in Lusaka at State house. Picture By Eddie Mwanaleza/State house.20-11-2015.
President Edgar Lungu held meeting with An International Monetary Fund (IMF) team led by Tsidi Tsikata who is division chief African department in Washingston and Mr Tobis Nybo Rasmussen IMF Resident Representative in Lusaka at State house. Picture By Eddie Mwanaleza/State house.20-11-2015.
Why President Lungu and Zambians resisting the IMF aid Package – An Analysis (Part 1)

Zambians’ skepticism about IMF

The memories are fresh for those who are old enough like the author, to have lived through the nightmare of the IMF aid programme coined as Structural Adjustment programme(SAP) in the 1980s and 1990s. Zambia was one of the guinea pigs country that IMF used, intentionally or unintentionally to experiment with the structural adjustment programme in Africa in co-hoots with corrupt MMD politicians.

The country underwent one of the most unheard of privatization programme in the world which destroyed the country’s industrial base which had been built over 30 years which merely required restructuring, capitalisation and modernization and changing shareholding structure. The SAP also mutilated the agricultural sector resulting in a fertile and well endowed country like Zambia failing to feed itself and importing yellow maize meant for livestock. The IMF program led to the destruction of the country’s domestic productivity capacity and local demand, aggravating poverty and income inequality. In Zambia, the IMF program has been associated with death, poverty and human rights violations with regard the right to decent jobs, education, health care and housing.

The programme resulted in towns like Livingstone, Luanshya, Kabwe, Ndola and others being turned into ghost towns. Companies like Zambia Airways, United Bus Company of Zambia, Zambia Consolidated Copper mines and others were wipe out from the face of the earth resulting in hundreds of thousands of Zambians losing jobs and being consigned to meeting early deaths through depression, curable an avoidable illness etc.

The question most enlightened Zambians like the author ask is: why is it that the Fund insists on some conditionalities that destroy the country’s agriculture sector by removing production subsidies as well as conditionalities? Why that IMF is does not want Zambia to protect infant industries but rather open them up to unfair foreign competition? On the other hand the European Union has common agriculture policy in Europe to protect farmers to an extent that there is a history of destroying produce and throwing it in the sea to protect the market. Why that President Barack Obama is spent billions to protect the auto industry and save millions of American jobs in 2009 during the financial crisis? Why is it that President Trump won elections on an agenda of safeguarding American jobs and fighting for fair trade? It is the hypocrisy of the IMF conditionalities whose main shareholders are western countries who, ironically at the same state of development as Zambia is, did not use similar policies a century ago. But they would want countries like Zambia to remove production subsidies from farmers and thereby endanger the countries’ food security! Isn’t what is good for the Goose also good for the Gander?

The IMF programmes of the 1980s and 90s especially the unfeterred privatisation is responsible for the evils in Zambia like corruption, illiteracy, prostitution due to unemployment, crime, street kids and has generally brought about immorality which was never there when this writer had immigrated over 25 years ago but it is now is the new normal in Zambia on his return.

There is no doubt that in Zambia, the IMF made economic and social conditions worse than improving them. It is on the basis of this background that the Zambian population will always be skeptical of IMF programmes and need convincing as to what has changed. The IMF and government needs a communication strategy and explain to the public why the programme is necessary and is different from the 1980s and 90s. The justification for the current IMF programme by government half hearted at best and absent worst at the moment possibly because they, themselves do not want it for reasons outlined in early in the article.

Why IMF deal is a necessary evil and how it will create jobs

According Dr. Situmbeko Musokwane, the former finance Minister in the MMD government, Zambia “graduated” from the IMF programs in 2010 and she was able to do with her own money and a few development institutions and the economy became so strong that the country could even borrow from the international capital markets which the PF abused on taking over power and has resulted in the current problems.

“ When a country , “runs” to the IMF for assistance that may sometimes, though not always, reflect failure to manage its own financial affairs,” He said in an analytical paper he posted on social media on November 24,2015 where he advised government that it needed to accept an IMF aid package.

It is important for those managing our economy and their political masters to acknowledge that the best institution that addresses the multiplicity of economic problems that Zambia has, which i have coined our five diseases “5Ds” which are debt, deficit, depression, depreciation (kwacha fragility) and discipline is the IMF. It is not a question of borrowing from another institution and the problem will go be solved and go away. This is being simplistic and entails lack of understanding of the depth of Zambia’s economic problems.
The Minister of Finance made this point very clear when he addressed Parliament last year on the “Zambia Plus” Economic Recovery programme”.

“ Honourable Members, I wish to mention from the onset that the efficacy of the IMF programmes is beyond getting financing, but inducing the confidence and cooperation of external benefactors such as the investor community and cooperating partners regarding the credibility of our economic programmes. The credibility of the IMF as an independent appraiser cannot therefore be emphasized,” Mutati pleaded with the Members of Parliament.

It is also important for people to know that the Zambian economy is not out of the woods yet, the minor improvements outlined earlier in the article not withstanding. The researchers of the Zambia Institute for Analysis and Research(ZIPAR) correctly observed the same.

“ The Zambian economy is in a precarious position more than most people realize. For a small, open economy like Zambia, a decline in real terms of growth domestic product growth from the long term average of 7% to 2.9 % in 2015 is dangerously low and close to full blow recession,” the Institute observed in the Daily mail of March 22,2017 in support of the IMF aid package.

The majority of experts both in government and private sector including this writer agree that going for the IMF package as quickly as possible is the lesser of the two evils for the Zambian economy as it stands now. There are compelling reasons for this and the first and top among them is the maintenance and increasing of investor’s confidence by the assurance that the IMF will monitor government compliance to agreed upon targets in the 2017 budget. Investors will not have confidence in the home grown economic recovery programme – the Zambia plus – like Ghana found out at its own peril – in the absence of IMF aid package.

The second reason as to why an IMF aid programme is necessary is its positive impact on Zambia’s foreign exchange status- technically referred to as balance of payment support. In his October,2016 speech Finance minister stated foreign exchange reserves had declined to $2.9billion from$3.9billion in 2015 due to foreign exchange outflow. An IMF programme will not only help stem the foreign exchange outflow due to improved investor confidence but encourage inflows. In addition, by facilitating the payment of EURO bonds interests estimated at $241million per quarter it will help with stabilization of the kwacha exchange rate as more foreign reserves will be built up.

Thirdly, Zambia’s major single and urgent economic problem that affects the majority of Zambians is the lack of jobs due to low economic activity and put simply- “ people and businesses have no money in their pockets to spend” and this has been caused by the liquidity crunch of the past three years or so. The government has allocated a substantial amount money for external debt servicing which is estimated at $241million per quarter. The government has also been contracting for goods and services on credit well knowing that it has no money and with no intention to pay in the foreseeable future, thereby accumulating the so called arrears in billions – financial indiscipline as Finance Felix Mutati will put it, “ spending the money they do not have”. If government obtains the IMF loan, for two years or so, these loans will be paid from the IMF proceeds and in the process, funds for education, health, social cash transfers and payment of arrears to suppliers of government goods and services will be released and thereby injecting cashflow in the economy. The multiplier effects of payment of suppliers are the injection of capital in these businesses which help them overcome the current liquidity crunch (cash shortage by businesses and households) which has been a major job killer. Businesses will be revitalized and more jobs will be created in the very short space of time- within months!

Fourthly, the IMF loan will instill financial discipline and ensure that government expenditure will be reduced and the much sang about song by Finance Minster of not spending what the government does not have, will definitely be implemented under the IMF thereby drastically reducing government borrowing from the domestic market which will in turn lead to the reduction of interests rates. Commercial banks will be stuck with billions of kwacha and they will have no choice but lend to private sector at low rates. It is not rocket science, economic activity will increase and jobs will be created and the recovery will have been attained.

CONCLUSION

The government is advised to conclude an IMF programme as quickly as possible so that the current positive investor sentiment does not disappear. We all agree that they should negotiate a good deal and ensure that the IMF does not kill our agriculture sector again which is the key to our economic diversification. The IMF owes the Zambian people a good deal that ensures that social services are protected and the agriculture sector is improved and corruption is minimized. The institution did more harm than good in the past and it would be nice for them to use Zambia as a case study of the” new IMF” that they talk about by superintending on a successful recovery programme. The ingredients and objective conditions for the recovery of the Zambian economy are there and the Zambian government needs to move fast and implement the programme as it will be good for the economy and it is smart politics.
It is vitally important that the benefits of the program is sold to the skeptical Zambian public by a well thought out communication strategy. It is so amazing that Zambian economists both in the opposition and the ruling Party have not simplified their messages for their bosses to communicate to the lay people in Zambia on how they intend to improve their economy by using the language they understand. The so called experts have failed to communicate to the public like the late great communicator, the late Michael Chilufya Sata used to do simplifying complex economic messages into phrases like “ More money in your packet”.

Here is some free advice from a mere retired Chartered Accountant who is not an Economist to the government on how they should pitch the Economic Recovery Programme under the IMF to the Zambian population as part of the communication strategy and branding of PF as good economic managers. The messaging should avoid word like: growth Domestic product(GDP), growth, liquidity, arrears, inflation, depreciation, deficit, fiscal consolidation, balance of payments, sentiment, interest rates and other technical jargon etc and place emphasis on jobs, prices, strong kwacha, cost of borrowing etc.

The following is how they should explain how the Economic Recovery Programme under the IMF will benefit ordinary Zambians; villager, worker, street vender, unemployed youth and entrepreneur:

  • It will enable Government will pay all suppliers and thereby create jobs
  • It will enable government pay civil servants salaries on time and thereby enable them buy stuff from shops and venders
  • It will reduce the cost of borrowing and enable businesses access loans from banks
  • The kwacha will become strong as more money will be coming in
  • It will enable more money to be injected in the economy and solve the current problem of people not having money
  • It will enable businesses produce more goods and services and thereby employ more people
  • It will enable prices of prices of goods and services to be stable and avoid continuous price increases

There is no doubt that the Economic Recovery programme under IMF will be supported if the public see the benefits and understand that it is in fact in their best interests. This is where one misses KK, Chiluba and Sata in terms of their communication and giving hope and confidence to the population in terms of the direction that the country is taking.. It also pays to have experienced and mature spin doctors and advisors. The issues like Economic Recovery Programme are not meant to be delegated. It is the President who should take ownership and inspire the nation.

The writer is a Chartered Accountant by profession and a financial management expert. He is an independent and non partisan commentator.

21 COMMENTS

    • Don’t blame the IMF when you vote for criminals who squander and steal over $9.2billion in 4 years. This is the medicine for voting tribal idyots into power. Just open your mouths and take the shots. You have yourselves to blame.

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    • Chartered accountants know nothing about social issues. They are too infatuated with numbers

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  1. The Zambia economy is in dire need to cash injection to spur growth in all sectors. However, the aid in form debts may be the last option if Zambians admittedly fail to take charge of their destiny. In simpler terms, we can purposely state that we must pay off the current debts and never accrue any more but increase our local resource mobilization and internally grow our economy without debts.
    Yes we can…… better grow locally than depend on foreign aid.

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  2. @Mushota, I normally do not respect to criticism on my articles but I am fed up with your because of your swallow and unsubstantiated criticism which now appear to be personal. You are an arm chair critic with nothing to offer. Can you write articles and exhibit your knowledge. You should write objective criticism or shut up. It appears you are motivated by winning the blogger of the year because you comment on issues that you have no competence in. I am a retired and respected retired international consultant and can even be your dad. I lived in the UK and you appear to be take awe and pride to have settled there when you are a just mere worker may be juggling three jobs in the cold of UK. Please criticise my articles on substance and content or write your own. I hope you change and…

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    • Mushota thrives on attention. Despicable! The IMF in addition to the economic conditions they tie to any financial and technical assistance when they are ‘on the block’ they indirectly influencethe political direction and this does not sit well with Edgar and Co. due to their extravangant expenditure and want to cling onto power. These guys will look no far than beyond their noses therefore IMFwill be their foe rather than a partner in economic recovery. IMF is a busisness institution anyway looking to earn interest on any money they give and be paid for the technical provision. We do hvave a crop of Zambians who know our landscape better and can help us out of the mess for us to only partially rely on IMF, the beast.

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    • Listen Sir, if you are going to be taken serious, you need to proofread your article, they will dilute anything you have said. The paragraph ‘The programme resulted in towns…..if that makes sense to you, you have had substandard grades in your accounting. By the way it is Mines (with capital..)

      Look I am not going to spend time correcting you.

      You have done well with your article, but it is your opinion and I dont agree with it. It is a lot of drivel in my eyes, nonsensical, codswallop, I have the displeasure of reading.

      You claim you are a respected and retired, ffs who cares? You can be my Dad, well that doesn’t make you immune to criticism Mr Nkonde.

      Take your alpha male, mentality you seem to have brought from Zambia and accept being ridiculed and criticized when you…

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    • Take your alpha male, mentality you seem to have brought from Zambia and accept being ridiculed and criticized when you do an article and take it by your chin Sir.

      analyser, I wont give you the attention and credence you seek, your are not fit and yours is water off a duck’s back. You will respect me and acknowledge my brilliance before e i accord you my time.
      You stalk me, you are doing very well at it.

      Mr Nonde. The ball is in your court, I await your reply.

      Thanks

      Bb2014,16

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    • Assuming you are a lady, I ll elevate you; you are like Kim Kardashian who lives her life in the spotlight then cries foul when things go wrong in Paris. I follow the Zambian news and you appear to find yourself predominantely there. Stalk no. I have mountains of things to do and following you is none of them. I ll not be waiting to hear from you ever again. I have easter holiday to enjoy. You are a good laugh anyway.

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    • @Kalima Nkonde and @Mushota, take your thieving chaotic Bemba ways from this site. Why do you monkeys like squabbling as if you have some grey matter between your thick skulls? Get lost and get a life stealing from each other.

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  3. From your first piece which made good reading, I looked forward to your second piece. Unfortunately in your second peice there is less analysis and more politicking.

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  4. The writer is day dreaming. With Lungu’s illegitimacy,lack of respect for Rule of Law,Constitutionalism,Good Governance and Human Rights violations Mutati should forget about an IMF Programme. After the barbaric invasion and trashing of HH’s Family Home and his subsequent arrest and charging him with a Treason Sentence Zambia should just forget about an IMF Programme. No Hearing of the Petition in Court, No Recognition and No Foreign Financing Assistance. Economic and Travel Sanctions are coming for Lungu’s Illegitimate govt.

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  5. I am also a Chartered Accountant, a lapsed bean counter. Let me weigh in on your comments.

    You have not made ANY mention of the terms and conditions that come with the IMF package. You have provided marketing tactics of how GRZ can sell the package acceptance to Zambians. Yet you make no mention of how the prescription medication from the IMF can be presented to the public.

    Will FISP be scrapped ? Will 1,4m or so peasant farmers be left in the cold ?
    Will Zesco tariffs go up still more ?
    Will FRA be dissolved ?
    Will some mandatory privatisations that Zambia previously agreed to but then reneged upon re-surface ? Such as Zamtel, Zanaco, Zesco etc.

    If you are indeed a C.A. you will have been through Econ101. The first thing we were ever taught in Economics is,,,,There is…

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  6. The writer of the article does not understand what lies beneath the IMF.
    An extortionist institution.

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  7. What gets me, is that: every time we shouted at Chikwanda not to borrow recklessly during Sata and later, Specialist Country Heads set IMF said Zambia could borrow because they projected our economy as buoyant and able to absorb the interest charges. Then boom, commodities market tanked and (I suspect Western foul play in holding prices down), and suddenly we are in danger of IMF Programme to rein us in that will see us borrow more under unfavourable conditions, especially targeting our Poor.

    I say we give Debt a skip, and Zambians tighten your belts until we have paid off as much as possible. PF must ask itself if it wants it Infrastructure development to be overshadowed by back breaking debt repayments under IMF.

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    • The need to go to the IMF just underlies hours reckless and fraudulent the so-called massive infrastructure developments were. When sober Zambians questioned the theft of the Eurobonds, the PF dunderheads faked astonishment that there was no appreciation for PF looting. If there was real investment, how come those investments cannot fund the economy? How come the Zambian national debt is now deemed unbearable? Why doesn’t PF run back to the commercial markets for more Eurobonds? DaPFt scumbags.

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  8. IMF refused to give PF government their assistance. No help for Zambia. PF has been spending big time and one of the requirements for get assistance from IMF was stop spending on civil service. PF spent over $1billion on army and police.

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    • I would be surprised if the IMF gave PF any more money when Lungu, of all things, wants to spend $3.2billion on a railway line passing through his home village in Eastern Province without any target cargo to be transported on this railway to nowhere. The IMF should keep their money than shoving it into the PF black hole.

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  9. Release all rapists, murderers but lock up all UPND SUPPORTERS! ZAMBIA IS A LAW ABIDING NATION
    VOTE FOR GEN KANENE IN 2021 FOR A BETTER ZAMBIA VIVA ZAMBIA

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