2021 National Budget does not Adequately Confront the Debt Crisis

The Minister of Finance Dr Bwalya Ng’andu presented to parliament the highly anticipated 2021 National Budget on 28th September 2020 under the theme “Stimulate Economic Recovery and Build Resilience to Safeguard Livelihoods and Protect the Vulnerable.” Within the context of the COVID-19 pandemic, the budget theme is aimed at providing a glimmer of hope in what have been challenging times. However, it is important to acknowledge as a nation that Zambia has in recent years and prior to the COVID-19 pandemic been hurtling toward a debt crisis. The Jesuit Centre for Theological (JCTR) is concerned that despite this precarious financial situation, the 2021 National Budget did not give this matter the serious attention it deserves. Specifically, JCTR expected that the Government will include in this Budget concrete measures on how the issue of unsustainable debt will be addressed within the financial year in focus.

According to the 2019 World Bank-IMF Debt Sustainability Analysis, Zambia is ranked as a “high risk of debt distress”. Government has been undertaking non-concessional borrowing and increased its expenditure borrowing patterns. This has led to a rapid and massive increase in Zambia’s debt stock. This fragile debt situation coupled with the advent of COVID 19 has drastically weakened our economic situation and is now undermining Zambia’s social development prospects.

As alluded to by the Minister in the proposed 2021 budget, external public debt stock increased to US$11.97 billion as at end-June 2020 from US$11.48 billion at the close of 2019. Representing an increase of 4.3%. Debt payments alone in the proposed budget will account for approximately 41% of the ZMW119 billion kwacha budget. This is higher than the combined allocation to key social sectors; Health, Education and Social protection that are only allocated 23.6%. A detailed look at the domestic stock also notes that government securities increased to K114.3 billion as at end of August 2020 from K80.2 billion as at end December 2019, inclusive of the K8 billion kwacha COVID-19 Bond. Furthermore, when looking at the 2021 resource envelope. It is clearly proposed that 44.9% will be financed through borrowing both domestic and external. This is higher than the 2020 proposed financing envelope that stood at 32.2%.

Although efforts have been made by Government to ensure that Zambia does not default on its obligations reflective through budget allocation towards debt and dismantling arrears, it should be noted that this is taking place at the expense of key national development imperatives. In line with the budget theme, JCTR clearly notes that it is highly unlikely that the budget will be able to deliver on ensuring that economic stimulation and resilience is attained. It is important to admit that the high indebtedness coupled with current economic and financial conditions such as low national reserves, high inflation rates and volatility of the currency, will render the aspiration of stimulating the economy impossible.

JCTR particularly wishes to bring to the attention of Government that the released budget makes no mention of how far the country has gone in setting aside funds towards repayment of the Eurobonds. In 2022, the first Eurobond worth $750 million matures after 10 years. Redemption of any debt in any given scenario works much better if the proceeds of the borrowed money are invested in productive sectors of the economy. This has not been the case for Zambia.

Nevertheless, JCTR applauds government on strides made to cancel, restructure and refinance existing loans. It was noted by the Minister of Finance that US$1.1 billion pipeline loans have been cancelled and US$280.0 million has been saved from the re-scoping of projects. This is indeed one step in the right direction. The Centre implores the Ministry of Finance to provide consistent periodic updates with as far as any liability management strategy aimed at putting our public debt on a sustainable trajectory.

JCTR reiterates that debt forgiveness or moratorium are not guaranteed and if given are not the Holy Grail to solving our debt problem. Therefore, deliberate efforts to tackle the challenge of debt head on beyond reliance on “debt forgiveness” must be made. Take for example, suspension of debt service payments totalling US$139.2 million expected under the G20 Debt Service Suspension Initiative (DSSI). This figure is equivalent to 0.6 per cent of GDP and 1.2 per cent of Zambia’s total external debt stock. The marginal impact of the DSSI on debt service requirements is explained by the structure of the financing of the country. Most of the public sector borrowing originates from multilateral and private sources. These creditors account for 73.3 per cent of external public debt.

It cannot be overstated that high debt servicing has evidently compromised budget allocations to social sectors such as education, health and social protection. Budget credibility does continue to be of concern for JCTR as budget execution has over the years been very poor in Zambia. Expenditure outturns have time and again been at variance with budget allocations. For instance while a call in 2019 was made to narrow the fiscal deficit to 5.5% of GDP. The outturn stood at 11.7%. The result: cutting of social sector spending thereby compromising human development outcomes. It thus remains imperative that debt sustainability is operationalized through our own commitment to do better for our nation and this must be reflected in all key national macro-economic frameworks especially the National Budget.

For further clarifications contact the Social and Economic Development (SED) Programme at the Jesuit Centre for Theological Reflection (JCTR) on 0955295881 and 0977883129 -0954755319. Email: [email protected] and [email protected]. Martin Mwamba Road, Plot 3813 Martin Mwamba Road, Olympia Park – Lusaka. P. O. Box 37774 Lusaka – Zambia