By Ibrahim Kamara CTPD Policy Lead on Tax Justice
The Centre for Trade Policy and Development agrees with Former Finance Minister, Honorable Ng’andu Magande’s remarks on the unlikeliness of Zambia’s debt cancellation. CTPD also thinks that the lack of transparency on the terms and conditions under which some of the loans were acquired makes it even more difficult to provide policy suggestions on how to progressively solve the debt challenge.
Indeed, the growing public debt has caused worry among many stakeholders among which includes the Civil Society Organizations with others beginning to make a call for debt forgiveness as the potential solution to the looming debt crisis.
As Zambia’s stock of public debt continues to rise with recent figures reporting it at USD 11.2 billion of external debt and K80.2 billion on domestic debt, the Government has not demonstrated the much-needed proactive response and commitment to respond to the growing challenge.
While it might be out of growing desperation to find solutions to the growing public debt problem, CTPD equally holds the view that it is highly unlikely that Zambia may receive forgiveness on its debt as the circumstances under which the country benefited from debt forgiveness programs such the Highly Indebted Poor Countries-HIPC Initiative are different from the prevailing conditions, especially when we break down the characteristics and composition of Zambia’s debt.
Firstly, there is a need to understand that about 55 % of Zambia’s external debt is in commercial loans. Commercial loans, which are debt advanced by financial institutions has interest rates determined by prevailing market conditions. Unlike concessional loans, these loans have high-interest rates and are highly profit motive thus making debt forgiveness a farfetched expectation.
Zambia also has bilateral and multilateral debt which by 2019 accounted for 22% of external debt. You may want to know that these are loans owed to bilateral creditors in other countries such as export credit agencies and big national banks or multilateral institutions such as the World Bank and the International Monetary Fund. These are the types of loans that were easily forgiven during the HIPC initiative era to which Zambia benefited when bilateral and multilateral lenders provided their share of relief to Zambia under the enhanced HIPC initiative. All said we must remember that debt relief is voluntary in nature and nothing binds the creditors to forgive debtors.
Secondly, about 30% of all Zambia’s External Debt by 2018 was owed to China. In a recent study that focused on Chinese debt, CTPD established that the loans were obtained from various sources in China and largely from the Export- import bank of China. It is CTPDs considered view that the loans owed to China by Zambia are unlikely to be forgiven at least not significantly for two reasons. First, China is now the leading global lender and would in this case risk setting precedence such that other countries equally start approaching china to seek forgiveness for their debt. Secondly, China itself is currently facing lower economic growth following the devastating effects of COVID- 19 and these resources may prove vital in revamping its economy.
We also raised concerns about the opaqueness of the Chinese loans- there is lack of publicly available information around the terms and conditions of the loans, this makes it difficult to know even when some of them are due. This is a harsh reality we need to accept and face.
Going forward, the Zambian Government needs to do the following. Firstly, Government should review its borrowing policies and strengthen its debt management systems. Secondly, Government should take seriously recommendations from the Bank of Zambia and comprehensively revise its fiscal policies in line with prudent public financial management practices. In addition, Zambia needs to decisively deal with the scourge of inflated project costs and corruption in public procurement. More importantly, Government should halt non-viable economic infrastructure projects.
Furthermore, Zambia needs to urgently engage its lenders and review some of the loan terms. Key among the things to look at will include; the terms of payment, the interest rates as well as the duration of payment.
Finally, Government will need to support the local private sector to take up the leading role when it comes to undertaking development initiatives including those on infrastructure. This debt challenge requires sober minds and clear decisive actions by the Government to mitigate a socio-economic crisis that may come if Zambia defaults on its debt obligations. CTPD stands ready to work with stakeholders to develop and implement appropriate policies that will forestall such a crisis.