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Monday, August 10, 2020

Zambia Debt Crisis and its Implications on the Economy

Columns Zambia Debt Crisis and its Implications on the Economy

By Hakainde Hichilema UPND President

The combined effects of poor economic management, corruption, prolonged power cuts and the COVID-19 pandemic have caused a severe deterioration in economic outcomes in the first half of 2020.

Shortfalls in tax revenue collections, intensification of corruption and heightened debt vulnerabilities continue to narrow the fiscal space to grow the economy and provide jobs, especially for our energetic youth.

At the current pace, Zambia risks reaching a precarious point at which a disorderly fiscal adjustment becomes inevitable.

To avoid a prolonged and painful recovery that this situation would entail, Zambia must not waste any more time in using the narrow window of opportunity that remains.

As stakeholders in the Zambian economy, our offer for free advice to the PF administration on debt and other economic management issues still stands. Our free consultation will save critical resources.

Since 2012, our advice on debt management has been as follows:

(a) Stop the careless, unplanned and excessive borrowing;
(b) Strengthen the legal and regulatory framework for debt procurement and management;
(c) prepare a robust plan for the repayment of the enormous debt, including the establishment of an adequately funded sovereign wealth fund.

Failure to heed our advice has brought us to this point – an unsustainable debt path that casts a shadow on the economic prospects for our children.

We know we were right. Our first 10-year Eurobond was issued with a 5.625 percent yield in 2012, and nine years later, the yield has increased to over 50 percent. This means that our Eurobond is of junk status, reflecting a heightened risk of default. Enlisting the services of debt advisors is further confirmation of the dire situation we are in.

Our current advice to the PF Administration as the country seeks to restructure our debt, is that a successful restructuring that provides enough debt relief relies on taking immediate measures to restore debt sustainability and restore stability in the economy.

In this regard, our high-level advice is that with immediate effect, strengthen oversight and the overall framework for debt procurement, monitoring and reporting. Proposed changes in the Bill 10 will only weaken the oversight role of Parliament, further undermining this effort.

Procurement of non-concessional debt must stop. The PF Administration must end the situation where their alleged ‘moratorium on new borrowings’, has seen some Ministers commit the country to new loans. For now, we will not comment on the role of the Minister of Finance in debt procurement, as the issue is in court.

Importantly, the PF government must commit itself to transparency and full disclosure of all contracts that have been signed. Transparency and accountability, which are the hallmarks of good governance, will build confidence among our creditors, especially in the G20 Debt Service Suspension Initiative (DSSI) to which Zambia has sought participation. Regarding the DSSI, we further implore the PF Administration to adhere to the requirement to direct financial resources toward mitigating the health, economic and social impact of the COVID-19 crisis, and call for strong safeguards to protect public resources against theft.

We also take this opportunity to implore Zambia’s creditors, official and private, to provide relief to the country through this initiative. It will not only bring some relief to the multitude of Zambians struggling to cope under these challenging economic times but also improve the country’s repayment capacity.

Of great concern to us is that government expenditure continues to rise in the context of significant revenue shortfalls yet without major changes to the National Budget. The government recently announced that while revenues have fallen by K20.8 billion, expenditures have risen by K20.0 billion, including an increase in debt service by K8.7 billion. Current measures to address this shortfall do not go far enough.

We implore the PF Administration to revise the 2020 Budget and undertake necessary reforms to make a real impact on lowering runaway expenditure. Of note is the need to eliminate all inefficiencies in the Farmer Input Support Programme (FSIP) to reduce its fiscal burden of this initiative, while improving the targeting of poor farmers. We also highlight the inefficiencies in the operations of ZESCO that tend to shift losses towards the taxpayer.

We therefore encourage the government to keenly look into this and other areas where savings can be made.

Lastly, subscribe to an IMF staff monitored program, commit to undertaking both structural and quantitative benchmarks.

In rebuilding the economy, we are happy to engage fully and continue to provide the advice we have been giving you for the last nine years. We have one Zambia and no other country to run to.

18 COMMENTS

  1. It’s unfortunate Hakaimbwa does not provide evidence each time he talks about corruption.

    Only the illiterate will nod to Hakaimbwa’s comments. Hakaimbwa prove to Zambians that there is corruption by publishing details that there is corruption.

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    • Eeeh these Christians who only become holy on the 18th of October, just for little trinkets from the high table , you have to spew all that sewer from your mouth.

  2. The text book wannabe president who will never be president. Even young tails has more experience In public office than this joker hh. If you don’t agree ba diaspora tell me which public role hh has ever done. Not even managing a public toilet, which means public toilet cleaners have more experience in public governance than him. Kz

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    • What does the constitution say about qualifications for one to become president? Have you read it?

    • I have always wondered how you found yourself as an advisor to the highest office. What really happened for such an error to have happened. Kaya pa Zed.

  3. KZ. Challenge what the man has said and not rushing to ridicule him. This shows just how much you guys hate the man.

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  4. HH how strange that you can complain about shortfalls of revenues

    Quote..!

    “”””Shortfalls in tax revenue collections, intensification of corruption and heightened debt vulnerabilities….. “””

    You are the one that said we are with Fred Meembe and we stand to support him just before the last general elections, when Mmembe deliberately refused to pay $Millions tax revenues which led to his media empire get grabbed by the Inland Revenues or the Government.

    HH you cannot have it both ways. Zambians see you through the lens…

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  5. It is easy to forget that all this debt nonsense got started because the government refused to collect a windfall tax from the mines. No debt, no interest repayments, no deflation of the currency.

    However, the gvt made common cause with the now foreign owned mining companies, whose bosses are the same as the bosses of the IMF/World Bank. And the Zambian people are supposed to pay for this blatant corruption.

    No. Cancel the debt. No repayment, no structural adjustment, no giveaways to the mines/IMF/WB/Rothschild barons/Windsor/Habsburg. They have too much money already and don’t deserve more.

    Sue the mines for unpaid taxes. At least reconfiscate the mines. You might have to anyway.

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  6. Very few people do not know that we are in debt crisis. Few do not know that CORONA has affected our economy what would be new would be for someone to tell us how we shall come out of this crisis

  7. You want to agree with him in part, but then he makes allegations of corruption.

    Every country is going through economic turmoil at this time.

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  8. Debt is addictive.

    Both at national and individual level.

    At individual level, the PF has unleashed predatory lenders on it’s already impoverished civil servants.

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  9. SENSE HH.TELL THESE DUNDERHEADS THAT THEY HAVE STOLEN.HENRY AND THIS MORON TOLE MBWA KZ WHY CAN’T U SEAT AND READ AND LEARN OF WHAT HAS BEEN WRITTEN?UBUKOMPO SANA BWALIFULISHA.

  10. I thought he would talk about the status of the world economy for now and then narrow it to Zambia. then as a patriotic Zambian, with a few Khobilis help out, like those Bill and Melinda Gates are doing. Help in Zambia. Ichikwanka bachimwena kumpalanya!

  11. Zambia’s debt stands at $19 billion (see 2020 UN international debt statistic report , page 144)
    The MMD left a debt of $2.5 billion in 2011.
    Micheal Sata added two Eurobonds which increased Zambia’s debt to $4.75 billion.
    From 2015 – 2019 Zambia’s debt increased further by about $14.25 billion(3 times Rwandas total debt)
    But Rwanda is more developed than Zambia even after a brutal civil war.
    ECL and the PF should not think Zambians are dull or blind .Our eyes and minds are open.
    We can see what is happening.

  12. Kikikikikikiki Oh ! gosh, those who do not have sufficient knowledge on the philosophy of public administration and finance and what is at play globally should refrain from commenting over this article. Its misleading to Zambians hear some demanding HH to solve the economic ills of Zambia and provide solutions and evidence of corruption. HH has been advising PF government all along and declined to take it resulting to Zambia’s current economic mess. As a responsible citizens he continues to offer advice – the challenge is for will PF regime to have a humble pie.

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