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Friday, October 30, 2020

With Love from Turkey: Understanding National of Debt

Columns With Love from Turkey: Understanding National of Debt

President Edgar Lungu and President of Turkey Recep Erdogan with there delegation during the official talks
President Edgar Lungu and President of Turkey Recep Erdogan with thier delegations at State house  during the official talks

By Herryman Moono


There have been alarming articles, interviews, opinions and statements following the statement attributed to His Excellency the President of the Sovereign Republic of Zambia, the President of this Great Nation, HE. Edgar Chagwa Lungu where he, during his hosting of his Turkish counterpart, President Recep Tayyip Erdogan, made reference to the interest of a Turkish private firm to refinance Zambia’s $750 million Eurobond contracted in 2012. In addition to the $750 million Eurobond, Zambia also contracted $ 1 Billion and $ 1.25 Billion Eurobonds between 2014 and 2015.

The plea to have a private Turkish firm refinance the $750 million bond has raised serious dust and debate, with varying views on how best Zambia could finance its debt. Much of this debate, however, has been devoid of a deep understanding of government fiscal policy. While many views have been expressed, not many, if any, offer a succinct appreciation of the role of government in the economy, and how debt financing is linked to overall economic policy, and its depth intertwined with the politics of a democratic country like Zambia.

This article is aimed at providing, at the bare minimum, a premise on which debate could ensue by making non economists appreciate the Principals of Public Finance, and the role of debt in an economy like ours. I share this with the humility of knowledge in public sector economics.

B.The Basics of Public Finance: Provision of Public Goods and Services:

The key role of government is the provision of Public Goods and Services. By Public Goods and Services we refer to those commodities or services that are provided to ALL members of the public, by government a profit on the part of the provider, the government. In strict economic terms, by virtue of these services being ‘public’, they have the qualities of non-excludability and non-rivalry in consumption. What this means is that the consumption or use of Public Goods by one individual does not in any way reduce the amount of the good available for another person. Furthermore, the consumption of the Public Good does by one individual does not exclude others from the consumption of the same.

If we look around us, every day we use public goods and services, among these, such as: The services of the Police, the Army, the Airforce, ZNS or we drive on government built roads and attend public schools, or, when we get sick we go to public hospitals and clinics to be attended to, usually for free or at highly subsidized rates. So think about it, ALL Zambians who own a car can drive along Independence Avenue in Lusaka and enjoy the lighting of the city without having to pay at all. A PF cadre’s use Independence Avenue does not stop a UPND Cadre’s use of the same road. UPND and PF Cadres both board their busses to their respective villages from Intercity Bus Terminus, without any discrimination. All Zambians are protected – in land and on the borders – by the police, army e.tc. without any discrimination. These are Public Goods and Services.

In our daily lives, we call these public goods and services “Va Boma” – “For the Government”. We say so because we don’t really pay for them when we use, and when they break down, we don’t pay for their repair – that is why we have many pot holes on our roads, “Niva Boma!”. But have you ever wondered who pays for them? How they are paid for? Where the money comes from? That is where the role of government comes in.

To provide the public goods and services that our country needs, the government in power, guided by its party manifesto, will articulate its Fiscal Policy agenda. Fiscal policy is merely government’s Revenue Generation and Expenditure Plan: Where will money come from? How much will be raised? Where will the money be used? What will be the effects of these on society (Lower Taxes? More Jobs? More Money in People’s Pockets?). What perhaps you may not have noticed is that the campaign promises of all the parties we have in Zambia are all centred on Public Finance. The PF’s “Lower Taxes, More Jobs and More Money in Your Pockets” message epitomizes and succinctly summarizes the role of Public Finance. The UPND have their 10 Point Plan which I am yet to memorize (It is too long!), but it too is around Public Finance.
In all, the role of government is to provide public goods and services to the public. To provide for these, however, government needs to raise the money. Where does the money come from?

C.Financing Public Goods and Services: Government Revenue Generation:

Now that we know the role of government, how does the government generate money to finance its operations in the provision of public goods and services?

There are a number of sources of government revenues and I list the key ones below:

1. Taxes – as administered by ZRA
2. Borrowing – both local and international borrowing
3. User Fees – such as toll gates, hospital fees, fees to access national parks etc.

Of these three, taxes are the key sources of government revenue. With that, we can therefore say that government fiscal policy will be tax policy on one side, and then link the revenues raised from these taxes to expenditure on the other end. What government spends on will be a reflection of the party in power’s priorities. Since 2011, the PF government’s priorities have been in infrastructure development. We have seen the beautification and expansion of our road network. We have seen the construction of many health centres and hospitals and schools throughout the country. All these are the ‘Public Goods and Services’ that I introduced in section B above.

The financing of these public goods is costly, however, and general tax revenues may not be sufficient to generate the necessary revenues. A government can increase the tax rates in the country so that it raises more money. However, this may not be politically sexy. In any case, you cannot tax your citizens beyond a certain limit before they revolt! In an economy such as Zambia where the informal sector accounts for over 80% of the economy, economy wide taxation is hard, and thus the burden of taxes falls on the small formal sector. However, philosophically this should make sense: Those who earn more should pay more because they have a higher ability to pay. Furthermore, those who earn more have a higher likelihood to demand for more public goods and services from government, hence they should also pay according to the benefits they receive from public goods and services.

Borrowing comes in as the next to look to option so that people can be saved from the heavy burden of taxation. The government can borrow locally or internationally. When the government borrows locally, it does so by issuing Treasury Bills and Bonds on the local financial market. To attract buyers (banks, private firms and individuals), the government has to offer a high rate of return on these debt instruments (Treasury Bills and Bonds). The rate of return which the government offers is called the Risk Free Rate – government is a ‘safe investment’. The higher the demand for money by the government to finance its operations, the higher the rate it must offer. However, given the low risk and high rate, local financial institutions (banks) will tend to direct a large part of their resources to government bonds, leaving very little money to lend to the public. For the little funds that are left, these are only available at very high interest rates, and thus takes away opportunity for the private sector to borrow to start or grow their businesses. This is the phenomenon called “Crowding Out”. By borrowing heavily from the local financial market, government not only raises the cost of borrowing and thus the cost of doing business, but also reduces the amount of credit available to the private sector. In the streets, we usually here statements like: Ndala kulibe mu circulation – Chayuma. This, colleagues, is bad for our economy.

To avoid crowding out the private sector, government can look to international financial markets and issue Eurobonds. By issuing Eurobonds, government can give ‘relief’ to the local citizens since the revenues that would have had to be raised through high taxes are now raised through international bonds. Furthermore, by issuing these bonds, the local interest rates would be lower and more credit would be available, hence fueling private sector growth. What is also key to note is that with the Eurobonds, the repayment period is longer and has a lower interest rate than locally contracted debt.

The big question many have asked is:

How does government pay back its debts?

The answer is quite simple:

Through tax generated revenues!

As I stated at the start of this section, tax is the single important source of revenues for government to finance its operations. There have been arguments that government should have invested the money from the Eurobonds in ‘income generating activities’ so that the bond can pay itself back. Colleagues, I hope by now you appreciate that this doesn’t make sense given the nature of the goods and services that government creates and provides. Public goods and services, as seen earlier, have no immediate return to the service provider – government. Think about it, when you neighhour’s house is protected by Armcor security and thieves break into your house, do you Armcor to come and protect you or do you call Zambia Police Flying Squad? Flying Squad of course! And when the Flying squad comes to your rescue, do you get a bill at the end of the operation? No! Why? Because it is a Public Good!

Since government is solely concerned with the provision of Public Goods, any money that the government borrows will be invested in the procurement and provision of public goods! However, given the Non – Excludability and Non – Rivalry in Consumption nature of public goods, their return on investment are low, and can in fact be negative such that they would fail a private sector assessment on investment. In addition, the return to these public investments take time to manifest. For example, when you build a school from the Eurobond in Dundumwezi, it will take you a minimum of 12 years for the first crop of the schools’ students to leave high school and another 4 years for them to finish college or university before they are decently employable and can start paying taxes to government. That is a total of 16 years, yet, the Eurobond’s maturity period is only 10 years, and in between these years, government will have to be servicing the debt by paying annual interest payments on the debt.

So where does the money come from?


When the government borrows for infrastructure development, such as roads, the benefits of this are not immediate, and in the absence of toll gates, are intangible. So how will government benefit from the road construction? It’s easy:

By reducing tear and wear and travel time that road users face in bad roads, the cost of doing business is reduced. As the cost of doing business is reduced, firms make more profits, and the higher the profits the firms make, the more tax the government will collect to service the road and pay the Eurobond. Furthermore, as firms becomes more profitable due to good infrastructure, they employ more people who in turn pay tax through PAYE. This, colleagues, is what we call the ‘Transmission Mechanism’ of public sector investments.

D.Debt Repayment Options: More Tax or More Negotiated Debt

In the event that the productivity of the nation has not increased rapidly to generate sufficient sectoral growth for an increased tax base, the government has two options:

1. Raise additional taxes by increasing the tax rates or increasing the range of taxes.

2. Secure new debt to pay off the existing debt.

We have now found ourselves at a point where the nation has to make serious decisions on debt. It is clear that we have not increased our productivity enough, and that since most of the Eurobond money has gone into Public Sector Investments whose returns are low and have a longer time horizon, we have not, expectedly, raised sufficient revenues to pay off the principal of the Eurobond when it is due.

This is where debt refinancing comes in. It is normal practice in the world as well as in the private financial sector to package debt and sell it. This offers you immediate relief on the pressure to paying back as well as gives you breathing space to readjust your economy to enhance its productivity to be able to pay back. This, colleagues, is what his Excellency the President had in mind when he made those remarks to his Turkish counterpart recently in Lusaka.

There have been concerns and alarming statements that the Turkey debt financiers are from the private sector. Okay? So? Aren’t the Eurobonds from the private sector? Oh I see, you think Eurobonds are issued by the continent called Europe? No, on the contrary, these loans are issued by a multitude of private investors whose interest is profit making, just like the Turkish firm.

So there you have it folks, I hope we are now on the same page. If by the time you finish reading this article you haven’t understood Public Sector Economics/Public Finance, ninhsi iwe anakulowa anafa kudala!

Remember: If we don’t want to borrow, we can just increase our taxes and within a short time we can pay back these loans!

Herryman Moono is a Lusaka based Economist with interest in Public Economic Policy, Health Care Financing in Resource Constrained Economies & Industrial Policy. He was educated at Oxford, Sheffield and YUNZA.


  1. PF is running the economy like a roadside Kantemba which also has a begging bowl .Turks please ignore ECL’s misguided plea.

    • Imagine ZRA going in peoples home to demand with holding tax because government is broke. Who does that surely

    • And that’s why it’s important to check your wallet income savings investments than wishes or expectations as a main source.

    • This article is total bullsh1t. 90% of the money that was borrowed was either stolen by politicians using the so called infrastructure development or it was invested where the ‘Return on Investment’ is zero. No one is against borrowing but we’ve to borrow for the right reasons and use the borrowed resources prudently. We’ve already lost it. Zambia is going no where.

    • VIPUBA vi bene Lungu & his PF00Lish regime are trying to sell Euro-bond debt to Turkish Vultures. These Shylocks are not called VULTURES for no reason. A Vulture is a bird that circles a dying animal & feeds on its carcass. We are doomed.
      Most PF00Lish cadres were too young or not yet born to remember the vultures funders that grabbed our national pride, the DC-10.

      When we advise you, it’s out of concern of everyone’s well-being. Imwe it’s about cuts, tenders & tribal inclinations.

    • This guy Moono is a total id.iot or should I say mother fcker in my street language, is telling us lies or fibs.
      Firstly Moono is trying to impress us with his Oxford Education but that is sh.i.t because it is not better than UNZA except Oxford has more resources and long history – I am an Oxford graduate and I know better. The REAL purpose of this article is to secure Moono a high profile Govt job from Lungu. Remember Moono tried hard to lobby for the Planning Ministerial job when Luck Mulusa was fired but Lungu ignored – but the id.io.t hasnt given up.
      1. May I remind this id.io.t Mr Moono that Zambians have a good reason to worry about Turkey debt financiers not because they are from the private sector but because they have forgotten about Donegal International Limited a British…

    • Cont’d
      1. May I remind this id.io.t Mr Moono that Zambians have a good reason to worry about Turkey debt financiers not because they are from the private sector but because they have forgotten about Donegal International Limited a British Virgin Islands Vulture fund – so don’t tell lies after all you are from Oxford.
      2. Secondly, Zambians are worried about imprudent use of borrowed funds where US$1m for each fire engine; $300k for each ambulance, US$1.25bn for Lusaka Ndola dula carriageway, etc. I it is convenient for you to ignore this because you want a job from Lungu.
      3. There is no accountability for the borrowed funds that are easily stolen but your Gvt wants us to pay higher taxes to repay the debt for stolen funds.
      4. We are not as dumb as you think of us Mr Oxford Moono -…

    • Cont’d
      4. We are not as dumb as you think of us Mr Oxford Moono – we are as intelligent if not more educated than you are which is why we are working on the International Market but still investing in Zambia. Our education is for a purpose but your education is for a show-off and to secure personal gains from the corrupt Lungu Govt.

  2. No Moono, going to borrow in order to pay on what you borrowed before is no solution at all. It is, however, a clear indication of very poor planning and a reckless, inefficient management team. This system does not work in both micro and macro economic undertakings. It is misguided thought to imagine that repackaging and selling a debt will give you enough time to restructure your economy when, in fact, the package is not coming to you and all you get is another bill! Or are you suggesting that after repackaging the country must go and borrow again in order to start the restructuring as well as pay the repackaged debt? Sounds like a stupd circular movement leading nowhere!

  3. Harryman,

    In as much as your article gives a good read, I think the government and indeed including yourself are missing the point.

    Am impelled to respond in equal measure as you have been to write this article and only have a short perspective from from the current happenings.

    No one in the country is saying do not borrow!

    From where am seating, I hear people of the land saying stop contracting expensive debt that is in the spirit of making some of our sernants pockets merrier!

    From where am seating, I hear the public saying, if you are going to contract debt, spend it wisely on priorities that as your article alludes to, turn the economy. The economy will not turn when we contract debt and expensive for that matter to buy things like fire trucks!

    From where am…

    • …. seating, I hear real patriots scowling at lower standards of fiscal discipline and a lack of freedom of information that seem to be dragging to see the light of day as if were something evil.

      We understand what debt is and does for a country…

      What we do not understand is contracting it, abusing it! That doesn’t grow an economy.

      From this perspective, your article is misguided from the public’s perspective and cry!

    • Thanks Dr Chonya you nail it nicely I think the author is assuming that people are just making noise without understanding what borrowing and all these international financial dealings are all about. There has been something deeper happening in our Country that is creating this Noise Mr Author…. CORRUPTION!!! I don’t get how you cannot appreciate this

  4. Good article but you should have removed “the attribution to turkey,the with Love” Then the title should have CARRIED SOME WORLDS ( ”THE ECONOMICS OF GOVERNMENT FINANCING ,DEBT,GROWTH ETC” )


  5. This is dumb. Your citizens have questions revolving around misappropriation of borrowed funds leading to increased borrowing and one Moono responds with this? Zambia’s debt is not sustainable because it is not used in a manner that generates enough revenue to offset the debt. The ratio of borrowing/revenue generation is terribly close to zero. Government borrows as an institution while not having policy in place to ensure they can be held accountable as an institution, let alone as individuals entrusted to run that institution. Even in economics for dummies that would be indefensible. It is no wonder we end up liquidating assets cheaply to foreign “investors”. Your government has plundered all leverage and then some, and your article addresses but none of that. Also, do us a favor. Next…

  6. …time declare your biases. This article is the equivalent of an adulterous pastor explaining the benefit of reproduction. We get it, reproduction is good but when do we talk about the hypocrisy in your being an adulterous pastor??????

  7. It is evident that this bunch of incompetent and corrupt thieves have not understood that the People are not buying any more theirs arrogant failed demagoguery.

  8. If the lender is paid dues on time, it means Zambia would not default. Repackaging the debt, selling it off at value added price to give the borrower a breather and to restrategise, is the simple logic behind refinancing. This is more sexier and appealing than higher taxes!

    • @Consistence:
      You are as wicked as a witch! It is not being clever BUT wicked for you to escape the huge DEBT you and Lungu created by pushing it to future years to be repaid by our grandchildren that never benefited from the same loans!! Sata, Lungu and Chikwanda brought us DEBT and they think they can escape this lightly – NO WAY! Zambians should wake up grab the assets they bought from the funds they stole!

  9. Eurobond should have revamped Zambia Railways and Industrial Development Corporation. It did not happen. And Mr Moono’s huge appetite to beg for a job from govt impairs his thinking to the extent that he has now forgotten that Zambia was a HIPC. Moono’s justification of debt is a myopic and misguided effort to feed meat to the crocodile hoping to be eaten last.

    • Zambia Railways CEO doesn’t seem to know what is going on. The stretch of rail line from Misisi, past Chawama going south has NO Ballast. I guess the stone were used to build houses in these townships. I’m sure, this is just the tip of an iceberg. Just as well trains rarely pass there!

  10. Good laymans explanation of public debt, but PF has got this one wrong. PF borrow and spend on projects that they think will win them the next election. They got us into this mess and they won’t be around to get us out. It is painful to see what is happening in mother Zambia, but come the next elections they will be dancing on stage.

  11. The article is not complete. This economist deliberately tried to hide one side of the story. Since taxes are the ultimate source of government money to pay off all debt, including Eurobonds, the debt will keep multiplying until we cannot pay back. That will escalate the exchange rate and inflation so that the country will get to a free fall. It is the fallacy of a Ponzie Scheme. I borrow k1,000 from Nathan. When Nathan needs his money, I go to borrow K1,200 from John and pay back Nathan (k200 for my ndiyo). When John needs his money, I borrow K1,500 from Ben and sort out John. When Ben needs his Money . . . Finally every friend of mine is aware of my trickery and there is nowhere else to borrow. At that time my debt is k20,000. Ellen, the last creditor reports to the police and I get…

    • What Moono has conveniently forgotten in his haste to secure an appointment (by kneeling – akin to Miles) is that PF assured the country that they have established a sinking fund for the Eurobonds so that upon maturity, the Government would redeem the bonds from the sinking fund. The question is: What has happened to the money in the sinking fund for us to seek refinancing at a higher cost to the Zambian taxpayer? But before even that: What has happened to the money from the Eurobond, since nothing has happened at Zambia Railways?

  12. ‘If we look around us, every day we use public goods and services, among these, such as: The services of the Police, the Army, the Airforce, ZNS or we drive on government built roads and attend public schools, or, when we get sick we go to public hospitals and clinics to be attended to, usually for free or at highly subsidized rates. So think about it, ALL Zambians who own a car can drive along Independence Avenue in Lusaka and enjoy the lighting of the city without having to pay at all.

    Nothing, and I repeat, nothing, is FREE. As a tax payer, I am insulted that you can give such a lame excuse and say we access these services for free……

    I think you have a good head on your shoulders, and will eventually achieve your ultimate goal. But stooping to this level of politics is…

    • Exactly. I think this guy has never paid any tax because he would’ve known that the money for those services comes from his taxes and not necessarily free as he wants to put it.

  13. Herryman Moono informs the nation he is an Oxford graduate. No doubt about it, Oxford is one of the leading universities in the world. One thing such universities insist on is structured and coherent writing. From this write-up, it is very clear Herryman is not grounded in academic writing. First, the title of the write-up is misplaced. it doesnt speak to content. Then, quite alright, the article starts with an introduction. Then it has the main body. Regretably, it lacks a conclusion. This is terrible omission. It renders the whole academic write-up as worthless as a used tissue paper. There is no way that a layperson could understand Public Sector Economics/Public Finance from such a poor write-up

    • I agree. Its a mumble-jumble article. Lacks clarity of thought and golden thread. He should not have have signed off as an Oxford scholar. Not even Sheffield and UNZA. Perhaps Westside University or better still no mention of university

  14. Super neat and clear article, thanks Moono for this spectacular write up. Economics 101 right there for you interested in public finance management.

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