By Sean Tembo – PeP President
1. There are a lot of misconceptions and sometimes just plain lies that have been peddled about the breadth and width on an International Monetary Fund (IMF) programme and what it would mean if Zambia was to be placed on such a programme. But today l wish to address the specific untruth that has been peddled by the UPND President Mr Hakainde Hichilema that if he became President of Zambia, his economic turnaround model would hinge on putting the country on an IMF programme thereby accessing a cheap IMF loan which he would then use to pay off our existing expensive commercial loans such as Eurobond thereby reducing our repayment obligations and freeing up financial resources which would be used for other social causes such health and education.
Such a simplistic view is impractical and untenable for reasons that l will give below. But before someone jumps to the usual punchline that l am attacking a fellow opposition, l want to make it categorically clear that there is nothing wrong about having a debate on how best to develop our country, no matter how heated such a debate might get. It is in the interests of the citizens of this nation that we have a viable economic turnaround plan, one that is tenable and sustainable.
2. Before l go into the details of why HH’s IMF route is not only impractical but shallow and simplistic, allow me to use just a paragraph explaining the economic turnaround plan for my political party; the Patriots for Economic Progress (PeP). As PeP, our diagnosis of Zambia’s economic quagmire is not that we lack resources, no. But rather that half of our resources are wasted through incompetent management of national affairs by Government while another 40% is outrightly stolen thereby leaving only about 10% for use by the citizens of this country. In other words, the bucket is leaking. And when the bucket is leaking, the solution cannot be to put more water in it.
To the contrary, the solution lies in mending the bucket. UPND’s and HH’s idea of getting an IMF loan amounts to putting more water in a leaking bucket. And that is the reason why l am fundamentally opposed to it. Our proposed idea for turning around this country’s economy is to mend the bucket by taking two actions; firstly to immediately stop the theft of public funds which can be achieved immediately within a year, and secondly to stop wastage of public funds through incompetence which is a gradual endeavor that we can achieve within 3 to 5 years. These two approaches have been very clearly outlined in the PeP manifesto ever since we formed the party in 2016. When we talk about theft of public funds, there are two aspects to it; there is theft of already declared income through exaggerated prices of tenders which is a small part of the theft, and then there is theft of undeclared tax and non-tax revenue which is the larger part of the theft that is usually never talked about.
A very small proportion of the money that GRZ generates actually reaches the treasury and most of it is diverted into individuals’ pockets. Our estimates are that these revenue leakages amount to between 60% to 80% of the total actual revenue generated by GRZ. That is why you will find most senior Government officials coming from very big unexplained mansions in New Kasama to go and work in usually unsanitary government offices. The Government is poor while the people who work for it are rich. If this is genuinely fixed, something that we hope to do within a year, it would free up huge financial resources that can then be used to not only meet and payoff our loan obligations but also address other social needs of the nation such as health and education. In the medium to long term, once we also address the issue of incompetence by ensuring that all decision-makers are employed on merit and not patronage, we will have sound economic policies coming from Government which will set the platform for private sector-driven economic development. That my solution. That is the PeP solution. To mend the leaking bucket and not to just pour in more juice that would come from an IMF loan.
3. We can now talk about the lie on which HH’s economic turnaround plan for Zambia is premised. That he will borrow cheap IMF money and use it to clear our existing external debt such as the Eurobond. Before we get into the details of that, allow me to first explain what the IMF is and what it is not. The International Monetary Fund is an initiative of the United Nations (UN) and it is governed by what is referred to as Articles of Agreement which were adopted by its initial 29 members on 22nd July 1944 in a small city called Breton Woods in the state of New Hempshire in the United States of America. Over the years, these articles of the agreement have been ratified by several other countries including Zambia. However, the articles of the agreement only provide the general guide of how the IMF operates, the actual so-called nitty gritties are outlined in the IMF By-Laws, Rules, and Regulations.
Now, it is these IMF By Laws which, in layman’s language, preclude the Fund from giving financial support to a member for purposes of refinancing that member’s existing loan facility and/or other financial obligation or for purposes of guaranteeing a future loan facility or the Fund’s financial support being used as collateral for an existing or future loan facility. Now, what am not sure about is whether HH knows this or he doesn’t. If he did, then he has been deliberately misleading Zambians by insinuating that his potential Government will get a cheap IMF loan and use the proceeds to liquidate existing expensive loans such as the Eurobond. If he did not know that the proceeds of an IMF loan cannot be used to re-finance another loan, then he is grossly incompetent.
4. Apart from the IMF By Laws, Rules and Regulations prohibiting the use of IMF loan proceeds to refinance a commercial or sovereign loan, once the Fund puts you on a programme, they will only give you money to help you with recurrent expenditure support and the amount is assessed based on your needs after you implement some of the Fund’s Programmes and achieve certain specific milestones such as trimming down the size of the civil service, getting rid of unprofitable parastatals etc. But that amount is unlikely to be much and it does not come as a lump-sum but is disbursed in small installments that are dependent on the attainment of specific milestones that the IMF would have set for you in their programme. In Zambia’s case, it is extremely unlikely that we would access more than US$3 billion in total. Now, as at 31st December 2020, Zambia’s total external debt was about US$12 billion. The US$3 billion IMF loan would by far not be enough to refinance our country’s external debt.
5. The other point to note is that between our country’s external debt (US$ 12 billion) and domestic debt (K80 billion), it is actually the domestic debt that causes serious damage to our economy because it crowds out the private sector and drives up lending rates. Ever wondered why our bank lending rates have averaged 45% even when inflation was single digit? Well, it is because the Government through the Bank of Zambia is willing to borrow from the market at around 29% through Treasury Bills and Government Bonds. So if the risk-free rate is 29%, then how much do you think the bank would be willing to lend to your business? 45 percent or above is the answer. And for as long as enterprises in the private sector cannot access affordable loan, then forget about economic growth.
In the few occasions that you see economic activities on the ground, it is by foreigners who come to Zambia with their own money while many brilliant Zambians go to the grave with their brilliant ideas that could not be funded due to the high cost of borrowing from financial institutions. On the other hand, external debt is money that you get from other countries and bring to Zambia and does not undermine the local economy in any way. If anything, it benefits the local economy. Therefore, HH’s preoccupation with external debt is misplaced and speaks volumes about his ability to understand the way the economy functions, let alone manage it.
There are a lot of textbook economists out there and l have always argued that HH is one of them, based on the soundness or lack thereof of his economic policy proposals. But the quagmire that we face as Zambians is that our economy is so terminally ill due to the rampant and perpetual theft of public funds as well as inherent incompetence that there will only be one shot available to save it and turn it around. The person that takes that one shot better know exactly what they are doing. HH is evidently not that person.