Defeating the debt demon

By Nkonkomalimba Kafunda

The country is embroiled in a crisis of expectation which is not far removed from the global cost of living crisis, as the world emerges from the covid pandemic only to face the effects of Russia’s invasion of Ukraine.

Based on election promises for a better quality more affordable life, Zambians are becoming increasingly disenchanted with their mundane existence as prices of essentials though stable remain high and, consequently, unaffordable.

The genesis of our local problems extend beyond Covid and Russian aggression and it is important that the general citizenry understand where we are, why we are where we are and what is being done to get us where we are supposed to be .

For ten years up to August 2021, the country was run by a government that was fiscally profligate. They borrowed because they were able to, without consideration of ability to repay, leaving the country with unsustainable debt in excess of US$32 billion owed to both state and non state creditors.

The consequences of this are dire. The new government has, in the short term, tried to mitigate the situation by acquiring an Extended Credit Facility from the International Monetary Fund but before this is secured creditors must be in agreement on a debt structuring mechanism for the country. Finance and national development Miniter Situmbeko Musokotane explained in a recent statement headed UNPLANNED BORROWING LANDED US IN THIS SITUATION BUT WE WILL SOLVE THE PROBLEM..

“This is important because without affordability in making debt payments, the budget will not afford allocations for payment of salaries, spending on social sectors such as education and health, and meeting infrastructure development obligations.

“In fact, as much as 75% of all the money the Government collects on a monthly basis would go towards debt payments without debt restructuring. To mitigate the impact of such a scenario, the creditors who Zambia owe’s money have been asked to reduce what the country owes them before we ask the IMF to help”.

However, after the initial creditor meeting on June 16 in Paris Co-Chaired by China and France, “the approval of the anticipated IMF supported programme has been stretched from June to later in the year to allow Official Creditors (Government and Government related lenders) under the G20 Common Framework to make credible assurances and facilitate IMF staff submission of Zambia’s request for a 3-Year Extended Credit Facility to IMF management and the board for approval,” read Dr. Musokotwane’s statement in part.

The approval, however, is not the panacea for all the ills that ail us according to Hannah Ryder, the CEO of China-based African consultancy Development Reimagined.

“Zambia may well be able to get assurances from this meeting to unlock the IMF programme, and possibly also World Bank finance as well. The IMF seem to be willing, and some creditors have said that Zambia’s recent actions and promises to increase transparency and debt management may also be helpful for them to back an IMF program.

“However, in terms of sustainability, the problem is Zambia and all creditors have to assume no relief or restructuring from the (non-Chinese) private lenders, which still puts a lot of pressure on Zambia’s fiscal space.

“Not only this, interest rates of these debts may continue to grow – as they are flexible – as took place for many countries in the 1990s onwards, which may mean Zambia has to keep on rescheduling and reviewing its plan.

“Unless Zambia has a clear plan for reviving its economy, taking account the risks of interest rates rising and a risk-ridden and uncertain global economy, it’s very unclear if any bailout today will really help in the medium-term”.

It is with this myriad of problems that the government is working to get the country out of this inherited malaise. Unfortunately, there has been an information drought as government is not effectively communicating the various hurdles it faces in it’s quest to deliver the promised better quality more affordable life.