In May of 2015, the Jesuit Centre for Theological Reflection (JCTR) warned the government of the Republic of Zambia, through an article, entitled “The Eurobond Reality Check” to consider with utmost urgency the setting up of a Sinking Fund in order to thwart a fiscal crisis on account of accumulated foreign debt. The government was further advised, to among other proposals, enhance domestic resource mobilization by modernizing, by way of informatics, payments of taxes, fees and fines. The JCTR advised governments that if no immediate and short to medium term strategies were implemented Zambia risks facing a chaotic economic and financial situation on account of government’s high appetite to borrow financial resources from international capital markets.
As JCTR we acknowledge government in coming to terms with a situation of their own making, which situation was hitherto being denied by the same government. In fact Just last April, Minister of Finance’s full report on the Status of Zambia’s Economy in the First Quarter indicated that Zambia’s external debt was at US$8.7 billion. However, we are shocked to be further informed in just under 3 months, in a ministerial statement aimed at informing the nation on government’s efforts “Addressing Fiscal and Debt Challenges for Sustained Macroeconomic stability and Growth” by the minister of finance that the total external debt is now at US$9.3 billion. Clearly, there is something amiss with debt contraction, recording, accounting and redemption. Sovereign debt management in Zambia has not been accountable and transparent. The policy discordance we are witnessing with regard to general economic and financial management in Zambia stem from resistance to accountability and transparency with regard to public resource management.
It is quite apparent now, why the IMF objected to Zambia’s bailout application. Our books are not in order and we have no capacity whatsoever to contract any additional debt given our current over-the-head debt levels. The austerity measures announced by the government are confirmation that CSOs, Think Tanks, the IMF, amongst, others were in order to advise government to reduce its high appetite to contract debt. Among the measures announced by government to regain fiscal robustness and sovereignty include postponement of pipeline debt as well as cancellation of some of the current contracted debt. Further, the Ministry of Finance has been instructed to ensure strict adherence to the programmed domestic financing in the 2018 budget. In addition we have been informed that the Industrial Development Corporation (IDC) will alongside the Ministry of Finance implement these measures by reviewing the performance of state owned companies to restructure their overall portfolio. It is quite apparent that these measures have been undertaken to avert a looming fiscal crisis. Government has become alive to the reality that the current path of unthrift spending is leading the nation headlong into a fiscal trough whose consequences are too ghastly to contemplate. Of primary concern is the fact that the ratio of external debt to revenue is projected to breach the sustainable estimated threshold of 20 percent by the time US$750 million Eurobond is due in 2022. The long and short of what JCTR is saying is that as a nation we cannot borrow our way out of our current development disparities. It has been reported that, the recent debt sustainability analysis conducted by the IMF and the World Bank indicate that Zambia is at high risk of external debt distress, emanating from the Eurobonds maturing between 2022 and 2027. With the ever widening ratio between debt to GDP; Debt to revenues ratio; and add to this a current account that has recorded negative growth since 2015, the government has no choice but to institute remedial measures.
Going forward, as JCTR, on account of a tight fiscus that has ensued, we recommend to government, as they go about implementing the austerity measures to ensure that social sector funding and spending is unimpeded. In this regard funding to health, education, water and sanitation is maintained at a steady flow. We further advise government that the announced blanket policy of funding to projects that are at 80% completion point be reviewed. Instead we advocate for a project re-evaluation after which viable projects might be identified and funding sustained or capped depending on the outcomes of the re-evaluation. JCTR further demands that the Loan and Guarantees Act be amended with mediate effect to bring it in line with the new amended Constitution which demands that all loan contraction be approved by Parliament. The English adage does say that a stitch in time saves nine. In this regard the government must avoid, the “too little, too late syndrome”. The public debt situation we are in, clearly attests that in the conduct of public affairs, “to be forewarned is to be forearmed.” The looming fiscal crisis, on account of accumulated public debt, attend interest payments and the impending maturation of the Eurobonds, is principally on account of ineptitude and a laissez-faire approach to fiduciary matters.