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Saturday, April 17, 2021

About the IMF: Misconceptions Versus reality

Columns About the IMF: Misconceptions Versus reality

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.

23 COMMENTS

  1. Sealing the leaking buckets will be HH’s first programs and the theft that you’re talking about will be the thing of the past because under this visionless drunkard leader even foolish fools like Bowman Lusambo have become rich in few minutes they have been in government.So,Mr Tembo don’t worry about what and how we are going to repay the loan coz our government will better the lives of every Zambian including yours.

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  2. Sean Tembo is a PF Surrogate. He is discussing HH and not what PeP can do. This is an academic exercise in futility. Tembo must discuss practical and topical issues. The ECL Govt is currently negotiating a $1.3 Billion Cash Bailout Package with IMF. Why is Sean Tembo not discussing the Merits and Demerits of this Programme which is currently under negotiation? HH is not in Govt now and we cannot waste time discussing hypothetical issues about HH. Zambia is less than 5 Months b4 the August 12, 2021 Election Day. How far has PeP gone in Convening its Convention? Is Sean Tembo going to be elected President and therefore PeP Presidential Candidate in the upcoming August 12, 2021 Elections? Does Sean Tembo believe in free,fair,credible and peaceful Elections? Is the New Voters Roll…

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  3. As he kicks with both legs, one falling short to touch the winning team(The PF100%), the other hitting the target right in the face of kalusa’s losing dead camp, you wonder what sean saw in kleptoh² who has dated the immoral IMF since the 90s by joining camps in the now wrongly termed UPNDEAD alliance.
    From the article, it is absolutely clear that BOTH Sean and nigga Kleptoh² are incapable of running our blessed country – thanks very much.
    With his lack of clearly stating the allegations that Government officials steal and turning a blind eye to the PF’s massive economic infrastructure turnaround in every 500M you throw a stone, Sean is economical with TRUTH as regards PF as he seeks attention.

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  4. Sean Tembo should stop discussing Persons but discuss ideas. Leave HH alone and talk about your Briefcase Party. When is PeP holding its Convention? Is Sean Tembo going to be elected President and Presidential Candidate for PeP in August 2021 Elections? Are Elections in August 2021 going to be free,fair,credible and peaceful? What are the implications of a rigged and Disputed Election for Zambia. A rigged Election will produce an illegitimate Govt and an illegitimate Govt cannot negotiate a Cash Bailout Package with IMF. Uganda and Zimbabwe are under International Sanctions after violent,rigged and disputed Elections. Is Zambia next? These are relevant issues that Sean Tembo could discuss. Not this: “HH said this” and “HH did that”. Sean Tembo should tell us what PeP offers to the…

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  5. If you take time analyzing Tembo’s solutions in the article, you will take just a split second to realize that BOTH Sean and nigga Kleptoh² are still allied in terms the phrase he used in this article which is that both are text book kids on economics. Only that nigga kleptoh² sounds as s1lly as attention seeker, Sean. No wonder they formed an u5 alliance. They sound the same. It is difficult to separate who is the silliest of them both. Secondly, sean if you have witnessed theft, why won’t you take action and show Zambians how the PF has stolen within the guidelines of the rule of law?. I hate yappers. They just scratch my nerve if they can’t prove a thing. Aimless yada yada. Progress 100%, ECL 100%, Peace 100%, Zambia overdrive 100, Elite…

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  6. I find your articles more informative and sensible. The only problem you’re always talking about HH. Campaign for your self. Let people know you. Otherwise you talk sense most if the times.

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  7. I don’t think this arm chair critic understands the seriousness of Zambia financial problem. You have defaulted on debt. 40% of your budget is funded by donors.
    In short you are not bankable. Ghana went on the IMF programme 3 years ago look at Ghana today?
    Is it so difficult to understand that Lungu is simply useless?

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  8. Sean Tempo,

    As the Engineer above says , look at Ghana today , 3 years after the IMF ……..

    I say no more….

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  9. Tembo is daft. Lungu’s incompetent PF has been busy negotiating with the IMF for a $1.3 billion rescue loan. They finished their negotiation two days ago. Isn’t this Tembo dunderhead aware of that?

  10. Sean Tembo doesn’t say how his government if it was to become a reality would pay the bondholders. Interest on this debt is in arrears already and since the kwacha’s exchange rate has collapsed since the debt was contracted, that alone has made servicing it a lot more difficult. He doesn’t say how much money his govt would save from sealing cash leakages so that it could run the country and also service the debt.

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  11. Sean Tembo, I would suggest you reserve these issues for the live presidential debate rather than throwing these curve balls at HH to which he will not respond.

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  12. Truth is people Like Sean Tembo are good at plotting holes in other peoples business but fail to come with a better solution on their part, its more like a fan watching a football game busy criticizing a player on the field because in their mind they think they can do better except in reality the person is not football player.
    Can Sean Tembo explain what is wrong in getting a loan at a lower interest rate to refinance a loan currently had at a higher interest rate, if we are scared of the consequences of suffering fiscal measures why do we get the loans in the first place?, it is the same as asking God to help you when you don’t believe He exists in the first place. Sean is also not considering the fact that the current regime (PF) are gunning for the same IMF loan

  13. Yes, Ghana went on the IMF program and got $918m of financial assistance. This is combined with a previously undisclosed debt of $1.6bn to arrest the fiscal deterioration cover the debt servicing costs. In fact, it is the April 2017 Eurobond issuance of $2.2bn and the subsequent sale of domestic bonds coupled with the stabilization in oil and commodity prices (gold & cocoa) that have been the catalyst for Ghana’s fast economic growth.
    The main problem in Zambia is that our debt sale proceeds, albeit from a poor performing Eurobond, have been used largely to finance nonproductive investments and a general failure to diversify the domestic economy. We have the misfortune that copper with its meager revenues still remains central to our economic prospects and covers 85% of our exports…

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  14. Sean is always criticizing but failing to come up with a concrete solution to what he criticizes he is a true pessimist. shocking is that he seems not to be aware the PF are currently seeking the same IMF bailout too, what is his say on that?.

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  15. I thought the article was about IMF and not about HH, sometime we should just learn to shut up.. Helps in the long run

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  16. Concentrate on your small party Sean Tembo, your nashala Neka Party. Leave out other Parties’ proposals.Your party is so small that it has zero chance of winning any election even at ward level.

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  17. Concentrate on your small party Sean Tembo, your nashala Neka Party. Leave out other Parties’ proposals.Your party is so small that it has zero chance of winning any election even at ward level.

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  18. Mr Sean ‘bullet point’ Tembo, please give evidence for this statistic.
    ‘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.’
    I did not read beyond this point because I am fed up of people banding about stats from their heads without evidence. These are very precise figures and you should provide evidence.

  19. This guy, Sean Tembo, is a wanted felon in Botswana, for theft. On what ground is he standing to tell us?

    Shut up man!

  20. Sean Tembo has an obsession of criticising HH even where it is unnecessary. IMF Staff has just completed a Virtual Mission with the ECL Govt.The Bailout negotiated amounts to $1.3 Billion. Tembo is discussing a hypothetical IMF Programme under President HH’s Govt. Why is Tembo not discussing the Merits and Demerits of the ECL/IMF Programme? August 12, 2021 Elections are 5 Months away. In May 2021 Zambia Parliament will be dissolved. ECZ has compiled a New Voters which generally is said to be incredible having suppressed Voters in UPND Strongholds and inflating the votes in PF strongholds. There is a lot of debate on ECL’s Eligibility. These are the topical and relevant issues to an Election Season. Tembo is diverting our attention from real issues to de-campaign HH. Whether Sean…

  21. I have always refused that hh is competent economist and can manage big companies or economy. HH can only invest in companies doing well on stock exchange that can be equally even by a blind man coz he has a choice. Otherwise, he is doesn’t even qualify to be CEO of any medium Enterprise company, he can fail it.

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