The consequences of excessive debt that I predicted three and half years ago and again 18 months ago, are now here with us, tighten your belts!
By Kalima Nkonde
In January, 2016 and again in January 2018, as a patriotic and non-partisan Zambian, who means well for the country, I penned two comprehensive analytical articles in a layman’s language. The articles were meant for the man on the street, cadres, our leaders in government, opposition parties etc. who do not understand the technical economic jargon to educate them about the consequences of excessive borrowing and the ambitious, massive infrastructure programme that our Government had embarked which President Lungu vowed to continue in spite of all the rational economic advice from experts.
In light of the austerity measures re-announced in an emergency cabinet meeting last week on May 27, 2019 , I have reposted my two articles through links below so that there are a reminder to government that, had they heeded my advice and others, we would not be in the mess we are in today. The economy would have fully recovered by now as it started showing such signs from early 2017, when IMF negotiations were going on and their team were literally supervising our economic management indirectly through providing technical expertise which was the basis of the “ Zambia Plus programme”.
The articles in the link are also a reminder and a warning to the current administration that things will get worse if the measures they have announced, continue to be mere words and no serious action of implementation is taken. It is as certain as the sun rising that by 2021, if measures are not implemented in full, the electorate may not be forgiving and charitable again. They will argue that we had an economic crisis 2015/16, and five years on, we are still in a crisis mode and ask questions: “what the hell is going on with economic management with all the advice?”. The answer will be crystal clear for all to see and feel.
I would advise government that more measures be taken to change the current negative perceptions about government to signal seriousness through actions that are conspicuous to the public. Perceptions can be more important than reality and these need to be managed by experts not cadres. The issue of big government needs to be tackled. There is need to take measures like reduction of the size of cabinet like South Africa has done, reducing Presidential motorcades, reduction in “working” visits by the President so that he spends more in the office.
The President should also take more responsibility by communicating to the electorate directly rather than through ministers and the Press Aide. If truth be told, the delegated statements by the aforementioned are not taken seriously by the public and investors. The President needs to be addressing the nation on critical matters like the current economic crisis and the KCM debacle so as to re-assure the nation and calm the markets, as his predecessors used to do.
In order to put the Zambian economic status in perspective as at the beginning of June, 2019 and to show readers why President Lungu held the emergency cabinet meeting, below are some of the economic metrics which are all trending southwards.
The numbers should concern any Chief Executive of the country and compel him or her to take brave and bold steps, take responsibility, and announce the austerity measures personally and not delegate the task to a finance minister whose stock was plummeting due to negative publicity. It really bothers some us, as Zambians, who are enlightened about how markets operate and the importance of communication and messaging, wonder if any thought is given to some of these issues. The finance minister should not have been given such a responsibility this time when she was on the ropes .Below is the current economic status of Zambia which in my view, is not yet very dire or catastrophic yet, but whose trends are very concerning because the impact has started trickling down and negatively affecting main street
- Monetary policy rate from 9.75% to 10.25%;Fiscal Deficit of 7.6% instead of the budgeted targeted 6.1% (capital projects spending and debt servicing for both foreign and domestic debts mainly responsible for the deficit)
- Government bond subscription rate dropped to 22.6% from 21.4%
- Kwacha depreciation from $11.89 in December,2019 K14.00 in May 2019,
- Inflation from a low of 6.1 % in 2017 to 8.1.% in May,2019 due to food prices breaching Bank of Zambia threshold
- Foreign Reserves fell to $1.4 Billion (1.7 months import cover) from $1.8billion in December,2018
- Commercial bank lending increased from 23.6% to 24.6%; Private sector credit continuously declining
- Subscription rate for government bonds reduced to 29% from 33%,Portfolio investment declining resulting in less forex inflows
- Economic growth for 2019 has been downgraded by IMF to 2.3% from 3.7% in 2018.
- Debt/ GDP ratio is at 73.1% including domestic arrears at end-2018
- Debt servicing percentage to revenue over 25%
- Eurobond yield 22%, one the worst performing in the world apart from Venezuela
Although the above statistics are trending upwards, all is not lost yet and the situation can still be arrested and reversed but well thought out strategies including a proper communication strategy involving the President and the re-engagement of the IMF can accelerate the recovery.
In order to simplify the effects of the above technical statistics to the man on the street, and to demonstrate that they affect all Zambians regardless of political affiliation, here is the impact of the above statistics. The negative statistics are reflected in the high prices of commodities including mealie meal, high unemployment rate (lack of jobs) especially among the youth, low forex inflows from investors, shortage of cash in the economy, late payment of salaries, late payment of suppliers, late payment of farmers shortage of medicines in hospitals, cancellation of University students allowances, non-payment of pensioners etc.
Below are links to my January,2016 and January,2018 articles where I outlined the dangers of the ambitious, massive infrastructure programme and the excessive borrowing binge that the government had embarked on. The fears that I and others had warned about, are slowly materializing thus the emergency cabinet meeting and the consequential austerity measures announced for the umpteenth time. We hope that this time around, there is political will to see the measures implemented in full.
- Flashback: PF Infrastructure Programme, the Poisoned well of Zambian economy
- Flashback : Zambians can’t ‘get out’ Mr. President, excessive debt will affect them all: Here are the risks and costs to the economy and country