Monday, May 20, 2024

Is an International Monetary Fund (IMF) Package Betrayal of the Zambian People or Debt Trap?

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By Boyd Muleya

As Centre for Trade Policy and Development (CTPD), we would like to commend Government for taking very bold and highly ambitious stance towards an IMF programme. The country’s much needed political will to transform the economy.

The Staff Level Agreement between the Government and the International Monetary Fund (IMF) is a step in the right direction. This milestone means that the Government is closer to clinching the Bailout Package with IMF. It also entails that the Government will have to wait for a report by the IMF staff and subsequent approval by its management. Furthermore, there will be need for Zambia to engage with creditors and obtaining adequate financing assurances using the Debt Sustainability Assessment Report carried out during the meetings. From these reports, the IMF Executive Board in Washington would be expected to discuss and make the final decision, as to whether Zambia will receive the ($1.4 Billion or K24.5 billion) or not.

The implication of the IMF programme entails that there will be realignments of various fiscal measures such as subsidies on fuel and electricity, as well as the Farmer Input Support Programme (FISP). Government’s monthly spending on subsidies are $67 million (K1.2 billion) on fuel and $40 million (K700 million) on electricity. This further translates into annual figures of around $800 million (K14 billion) on fuel and $500 million (K8.75 billion) on electricity. The savings from this, amounting to K22.5 billion are enough to cover the Constituency Development Fund (CDF) Budget for the next five (5) years at new CDF Allocation of K25.7 million per Constituency.

It may interest you to note that the incidence of subsidies largely benefit the foreign corporations. For instance, mines are being subsidized by over $780 million (K13.65 billion or 60 percent of total subsidies) every year in both fuel and electricity, while Zambians are only getting a $26 million (K455 million or 2 percent) per year.

As a cushion to the possible effect of price increase, Government expenditure towards social spending such as health, education, social protection have been increased to protect the most vulnerable. Equally monetary policy has been adjusted upwards to avert the expected price increases. We are happy to note that in this IMF deal, there will be no wage freeze, no job cuts, employment freeze etc. The truth is that Zambians should be braced for hard times now and a better future ahead.

There is need to appreciate alternative options that well-meaning Zambians have been proposing to avert the IMF programme. However, these options make assumption that Zambia is not indebted to over 44 external creditors that have direct interest in our meagre resource base.

Therefore, a conversation of ‘No IMF programme’ is only possible when one assumes there are no external creditors calling shots to have the IMF guarantee for their interests. So, if one is asking why Government is contracting additional debt from the IMF, there is lies your answer. Besides there many benefits such as technical support, flexible concessional interest rates to be repaid over a long period of time than commercial debt, improved credit rating and prospect for Foreign Direct Investments. In such a situation, Zambia needs to address these interest groups by taking care of their different needs. In Zambia’s current vulnerable state, the country needs the IMF programme not only for her own sake but including external creditors whose money we have already committed towards expenditure including subsidies.

With defaults of some repayment obligations, Creditors are skeptical about the political risk of Zambia, hence the need for Government to be on an IMF deal as an assurance that Zambia will restore fiscal and debt sustainability to support the Creditor’s compliance towards renegotiation of debt through refinancing and restructuring. Therefore, Zambia needs the IMF at this point to have a robust and inclusive approach covering all stakeholders.

Sudden rise in revenues domestically is exceptional, and 100 percent recommended but let’s face it, why has it been difficult for this to happen all these years? Lack of political will. In addition, there are several structural changes, agreements, and contracts that need review before we can safely rely on our domestic resources. Just to issue caution, debt is inevitable for any country, worse if a country is faced with a debt trap situation like Zambia. Unless Zambians are willing to pay very high taxes than the current levels.

As CTPD, we do appreciate that the Government has started on a promising note by sharing statistics on debt figures, but that is not enough. We would be happy to see what documents Government is using detailing the Economic Recovery Agenda. Government should adequately reveal the economic recovery plan that they are using to interface with the IMF. The Government has remained mute over the Economic Recovery Plan (ERP) document that was formulated by the immediate past regime. In addition, the pillars cited by the Government as drivers of their unpublished economic recovery plan are in the Draft 8th National Development Plan which is not yet been availed to the Public. As CTPD, we urge Government to expedite the process to finalize the document.

Furthermore, CTPD expect the Government to come up with a very comprehensive communication strategy that will prepare the Zambians about the challenges that lie ahead before the economy begins to take shape.

The Author is the Head of Research at the Centre for Trade Policy and Development (CTPD), a not- for –profit, membership based trade policy and development think tank. The organization was established in 1999 and existed as the civil society trade network (CSTNZ), until 2009 when it was rebranded as the Centre for Trade Policy and Development (CTPD).

12 COMMENTS

  1. Either a Betrayal, or a Debt Trap..? Are you kidding me? How about a government who is having to take accountability for the corruption, theft and downright incompetence of the past decade of the previous government? Honestly. Take some ownership for the horrible job PF spent the past years PUTTING US IN THIS MESS.

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  2. Spot on Boyd – Spot on.

    For all you so called economists, so called experienced politicians like Kabimba, so called technocrats who are just theoratical and bookworms, READ THIS ARTICLES CAREFULLY, SOAK IT IN, ANALYSE THE SENSE AND THE LOGIC AND AT LEAST FOR ONCE DO NOT BE NEGATIVE WITHOUT GIVING THIS A CHANCE TO WORK.
    In my opinion ZAMBIA AND ZAMBIANS WILL START SEEING THE BENEFIT OF THIS DEAL BY THE END OF 2022 TO END 2023.
    LOOKING FORWARD TO A BETTER ZAMBIA AS LONG AS THERE IS POLITICAL WILL, HARD WORK, SENSIBLE ADVISE FROM OPPOSITION AND EXPERTS.
    NO MORE TRIBALISM TALK – DENOUNCE IT, NO MORE VEY SENSITIVE COMMENTS WITHOUT PROOF – SAY NO LIKE NAKACINDA DID, LET ALL TJOSE PEOPLE WHO HAVE NOT GOT THE ZAMBIAN WELL BEING AT HEART BE IGNORED AND THROWN AWAY INTO THE BIN FOREVER…

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  3. Assumptions after Assumptions. Another assumption is that citizens will buy the expensive fuel and keep the production at the current levels. Another assumption is that employers will keep producing the same and keep the current tax paying employees. The most likely situation is that there will be no savings.

  4. Oky
    But I believe why can’t we forget about borrowing from IMF and endure the next year since we shall realise more saving from removal of subsides which means 2023 there shall be the benefits from subsides
    Borrowing again for what purposes there is a hidden agenda that is not given to us here truth is we made a budget based on the assurance we will get the loan . To the waste case scenario what happens if IMF refuses to grant the loan ?

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  5. Boyd Muleya, well done this article clarifies the questions the doubting Thomases had……Mr. Sean Tembo, The Kabimba`s and other Economists, take note of this article. Our LT bloggers, take time for once to read and make a qualified judgement, do NOT fall prey to those who don’t read but are here day-in-day-out providing misleading information, just for the hate of the UPND government. Those who peddle lies, and have started believing their lies as facts.
    Please, take note of the different constellation of the old and new IMF conditions: the new IMF deal, does NOT include wage freeze, job cuts, employment freeze etc. These were talking points of those who are hoping for armageddon.

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  6. We have been lied to so many times and you still continue lying, bring concrete reasons from within zambia to develop zambia by zambians eg get the Kasenseli gold mine and start operating and all the proceeds put them in the reserves so as to grow the reseves,look at Botswana the way they do their Diamonds but why us,we like talking too much backing too much go for work its to work.All the promises were made during campains so do what was promised kwasila and stop lying or God will punish you.

  7. Even without reading the load of nonsense, I can make a qualified judgement.
    1)We need the IMF deal to access cheap funds to rescue our economy unlike the expensive Kaloba the PF was getting from China Exim Bank and Eurobond.
    2) The electricity subsidy was mainly benefiting the mines and it needs to be scrapped. Residential customers only make up less than 10% of the consumers. ZESCO seriously needs to be restructured.
    3. The Fuel subsidy was benefiting PF allied suppliers like corrupt lawyer Lewis Mosho who landed a huge fuel supply contract. His company was supplying fuel at a very high price which the PF was subsidizing with millions of $dollars of tax payers money. This subsidy needs to be scrapped immediately.
    THE IMF PACKAGE IS A MUST.

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  8. This is rubbish anyone who says is well articulated lack understanding of current economic dilemma Zambia is in and will be in. This is like father Xmas giving you toys to make you happy instead of livelihoods which are sustainable and needed

  9. @ZeroBoyz ,
    Every Jim and Jack can easily issue the same statement like yours, can you be specific and elaborate more on “current economic dilemma Zambia is in and will be in” ? And why do you think this article is “rubbish”?

  10. “Is an International Monetary Fund (IMF) Package Betrayal of the Zambian People or Debt Trap?”

    Answer: It’s both a betrayal and a debt trap!

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