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Wednesday, January 26, 2022

It’s difficult to understand why our new government leaders are celebrating getting on to an IMF programme

My reflections on the IMF deal

Columns It's difficult to understand why our new government leaders are celebrating getting...

By Fred M’membe

It’s difficult to understand why our new government leaders are celebrating getting on to an IMF programme. It reminds me of the PF government’s celebrations over getting the Euro bonds. Can one really celebrate getting kaloba! Is that something to really celebrate?
In life, it is very important to be clear about things or else you be trying to decorate your tomorrow with other people’s yesterdays. Those in the dark are in no position to light the way for others.

The truth is that when a country borrows from the IMF, its government agrees to adjust its economic policies to overcome the problems that the IMF believes led it to seek financial aid. These policy adjustments are conditions for IMF loans and serve to ensure that the country will be able to repay the IMF. Conditionality covers the design of IMF-supported programmes —that is, macroeconomic and structural policies—and the specific tools used to monitor progress toward goals outlined for cooperation with the IMF.

The IMF believes that conditionality helps to stabilise balance-of-payments problems without resorting to measures that are harmful to national or international prosperity. At the same time, the measures are meant to safeguard IMF resources by ensuring that the country’s balance of payments will be strong enough to permit it to repay the loan.

Most IMF financing is paid out in instalments and linked to demonstrable policy actions. This is intended to ensure progress in programme implementation and reduce risks to IMF resources. There are steps a country must agree to take before the IMF approves financing. Examples of these are the elimination of price controls, subsidies, monetary and credit aggregates, international reserves, fiscal balances, and external borrowing, the ceiling on government borrowing, minimum level of international reserves, minimum domestic revenue collection, minimum level of social assistance spending and so on and so forth.

The most important function of the IMF is its ability to provide loans to member nations in need of a bailout. The IMF attaches conditions to these loans, including prescribed economic policies, to which borrowing governments must comply. The IMF gives loans to countries in economic trouble. In exchange, countries must implement a programme of painful policy reforms. Countries rarely complete these programmes. Countries must meet policy conditions in regular reviews to gain access to tranches of funding. Failure to implement them interrupts the programme. The high failure rate may indicate that the IMF’s programmes may be unimplementable by design. They simply entail too many policy conditions. Even neoliberal reform-minded governments struggle to implement them.

And programme failure has serious repercussions for economic development. Failure sends a negative signal to markets, causing them to lose confidence in the ability of governments to stabilise the economy and undertake reforms. The result very often is a rise in inflation and increases in capital flight that deprive countries of much-needed capital for investment in public goods and services. Some have blamed the failure rate on a lack of motivation by borrowing governments. Facing pressures from special interest groups, such as labour unions and business groups, governments often backpedal from previous commitments.

In addition, it has been have found that countries that are friends with powerful donors like the US also experience more implementation failure. They receive favourable treatment, such as regaining access to IMF loans much faster than other countries, creating a moral hazard problem. In other words, encouraging bad behaviour.

Conditions to privatise state-owned enterprises, liberalise prices and overhaul the public sector were especially prone to cause implementation failure. This is because these conditions mobilise domestic opposition that can thwart programme implementation. Usually, trying to kill this opposition some governments have turned tyrannical – denying citizens their fundamental rights and freedoms of protest, assembly and expression.

Researchers have also ruled out that implementation failure was driven by the occurrence of a financial crisis, macroeconomic instability, domestic opposition to policy reform, or geopolitical factors.

Investors rate a country lower when it had a permanent interruption of an IMF programme.

Programme interruptions lead to adverse financial market reactions. When investors lose confidence in a country’s ability to undertake market-liberalising reform, they require higher interest rates on their loans. Borrowing countries that failed to implement IMF programmes, therefore, faced the risk of more volatile capital flows and higher refinancing costs. Ultimately, higher financing costs made them even more dependent on the Fund, entrapping them in a cycle of dependency.

Given the detrimental effects of IMF programme interruptions for developing countries, it is puzzling that the reform of IMF conditionality is lagging.

The IMF has often blamed weak capacity and lack of “political will” for poor implementation. This predominant view was challenged by Horst Köhler, a former IMF managing director, who launched a “streamlining initiative”. Its goal was to reduce the number of conditions.

But the number of conditions remained high. This is partly because of the rigid process by which new IMF programmes come about.
There’s a need for greater leadership to ensure policy coherence in IMF programmes. This is even more important right now with a record-high number of 80 new IMF lending arrangements due to the COVID-19 crisis in developing countries. Under the dual COVID-19 health and economic crises, these programmes run the risk of having too many conditions. This may drive countries into financial disaster and back to the IMF again. This is the perilous path our new government is celebrating embarking on!

36 COMMENTS

  1. I pray for a day when our countries instead of borrowing will be able to mobilize local resources to develop. I read somewhere that Zambia is number five fish producer in Africa. So we can do it.

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  2. A typical, far too long, Fred article, with just his thoughts and suspicions, and no true facts. And this guy got 0.000001% of the votes on August 12, no seats in parliament and therefore should get nobody’s attention anylonger – especially from the media.

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  3. Easier said than done….your friend HH is now regretting being voted into office……things are getting out of hand now …..and at this pace I can foresee Nalumango resigning from HH’s government

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  4. Deja Vu @ 1, when’s prayer expected to deliver for your countries? Are u in a position to give a time frame and an example where prayer lifted some countries out of poverty.

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  5. ,@5 Nemwine
    I think Deja Vu is just using the word ‘prayer’ as a narrative not that he’s on his knees praying as per se…..we all say that but it really doesn’t mean we are on our knees praying….hope you get my point….but anyway HH has failed and Nalumango is busy contradicting his boss every day….it has ended in tears for Zambian voters

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  6. Only when your mindset changes to positivity and objectivity will you know why there is a celebration in the country on getting on the IMF program, you may not understand it now because your mindset is still on ‘oppose mode’

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  7. Our bloggers here should go to Google and search for meaning of ‘Vulture Funds’ and will understand why we had to go the IMF way. Mmebe is old enough to remember the problem Zambia ran into during FTJ Chiluba’s time

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  8. Very clear that the author does not understand that the damaged and ravaged economy by the PF requires massive, monumental,urgent and complex repairs, and without a shed of doubt requires huge capital injection to jump start the process. The author may also not understand the magnitude of the economic malaise we are dealing with here. Can we find another name for the opposition in Zambian because calling them opposition to them means opposition in its totality

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  9. So if we understand that the billions of dollars we are given in aid from the so-called first world is actually fractions of taxpayer’s money we will begin to understand where we should begin to concentrate. The only thing against us is a large country with a small population. So priorities must abound. What this also means is that we need a very tough anti-corruption stance because our margins are razor-thin. As soon as a useless politician steals we immediately go in the red. That is the reality chaps. So produce, export, and create attractive environments that will attract earnings. Come for free lessons. Awe mwe.

  10. I was also wondering. UPND were on radios, watchdog condeming PF plsn to get a loan from IMF… They come to power and the first thing they did was getting a loan and they celebrate it as an archievment . And scoffed at PF for failing to get this Loan…can someone explain this…im getting confused

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  11. @7 Munthu W
    It’s people like you no wonder Africa will always be controlled by the west….you can’t think outside the box and how do you honestly celebrate debt when you have more than enough in your own backyard….stop clapping just because it’s HH…..try to be objective

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  12. #5 Naimwe… You are so HHnized that you can’t even understand a simple figure of speech. When PF was in office you and your people always gave an example of Rwanda how that country developed without getting loans. Pray doesn’t mean you going to church and kneeling down… pray in my context simply means hoping, wishing, longing etc you can take your pick.

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  13. Is it not Mummembe and his friend Sata who got Eurobonds and put the country in this messy? Now he wants to turn around and look clever. Leave the New Dawn to sort out your messy. We know who means well.

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  14. UPND is a let down, ever since they got into power all they do is complain about PF, I just wonder weather PF is their idol to emulate.
    PF did it’s part and you have to do yours and leave your legacy PF has left his.
    UPND concentrate on your path complaining is weakening you , you will be fearful and fail to do anything tangible to talk about.
    Mark my words!

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  15. People, if you are personally broke, what do you look to do?
    Answer: borrow.
    I’m sure that many of you WILL borrow from a lender who can offer you a lower rate than your current debt rate.

    Zambia is BROKE.
    Why shouldn’t your government do the same as the individual?
    I read this paper everyday and I see columns upon columns from political commentators writing “Cloud cuckoo land” stuff.
    People get real.

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  16. Quote from the mastonline 9th December”Dr Lampi has advised the government to stop reacting and answering to every little criticism.

    “You will get nothing done. If you reply to comments, you will be considered as defensive. If you do not reply, then you are aloof and arrogant. If you change policy decisions, then you have U-turned. If you stick to your decision then you are a non-listening government,” he warned. “Every Zambian considers himself to be an expert in every topic or issue. Irregardless of any decision you make there will always be critics. Even real experts differ in opinion: for instance, in economic matters. Therefore, put your head down and implement your agenda with your strategies.” END OF QUOTE

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  17. Africa was once controlled by the east, Angola, Mozambique,Tanzania, Zimbabwe,how did they end up?
    Cuba the example Mmembe admires is in a big problem , shortages of everything.
    We sometimes admire certain countries from the outside while the citizens are crying.
    The west this,the west that,it’s not the west that ruined the mines we nationalised in 1968.They were good had excellent conditions,is it the West that spent $42m dollars on Fire Tenders when we could have bought them from China at $60,000 dollars each?

  18. Mmembe should shut the hell up in shame.He emphatically supported PF during Sata’s time …a party which got Zambia into Eurobond mess.

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  19. Newline- Dont mind Deju vu he posts comments even he don’t understand when cornered or quizzed he starts sobbing like a toddler

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  20. I may have missed the celebration, when was that? The money borrowed will definitely be used properly, hope so. I have confidence in the new government. No corruption please! Watch them

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  21. Ofcourse how can he understabd and appreciate when he is not sitting at the helm of running national affairs? Tge opposition just cebrwr tgeir argumwnts with nefative mirages and guesswork of the internal ruking party’s plans to which they’re not privileged to have details

  22. #27 Tarino Orange. Awe mune I am not any good at IT. Apart from typing and posting on LT I know nothing else concerning IT.

  23. Mmembe dont complicate things its not Idifficult to understand why our new government leaders are celebrating getting on to an IMF programme. They have nothing to celebrate so they will be celebrating when their speaker drinks Brazillian coffee or when HH walks on a clean red carpet.

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  24. That’s very rich with hypocrisy coming from a man who enthusiastically supported a party that put Zambia into a debt hole.

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  25. How things change. Mmembe’s Post was closed because of his attacks on Edgar Lungu (Lungu applied the law when he saw lapses in the operations of the Post). The Post resurfaced using private premises which were also closed, then reincarnated as the Mast. Today people who called him a brave victim of the PF have forgotten this part and can only recall his support for PF when Sata was the leader.

  26. We must all agree & note that these were not Hh’s plans. All he wanted was power & revenge, but he now finds himself boxed in with the many useless promises he made. Now he has 5 yrs to mislead the youth on what is now important, not what he promised. Brace for confusion.

  27. This country is extremely rich, it needs a right leadership not this dependent dubious tycoon. Characters like economists and accountants just think money. They think investing in exploration, research and development is a waste of money. Do we have credible researchers in Zambia? Research must not be academic. Without pragmatic research none that has been developed in the world could have been developed.
    Development follows research. For a country like Zambia to develop, it must anchor its developmental agenda on research.
    Next I need a researcher on the ballot not these treacherous Teachers, Unionists, Lawyers, Economists or Accountants. But KK and ECL had some nerve. Great men.

  28. This failed government is in denial, it is too defensive to all the wrongs they are doing it is like they don’t have any agenda of their own , all they do is turn around and blame the already gone regime this is very sad for our nation , as long as you continue complaining about your predecessors you will achieve nothing in your 5years , complainers are not real men who can achieve anything meaningful , this the spirit of HH who only got into state by crying that they were doing things wrong to him by his competitors , this spirit will to take Zambia no where, you cannot go into leadership through crying over the shoulders of someone if he moves away you will collapse .

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