Thursday, June 20, 2024

IMF Deal: Cry, My Beloved Zambia, the conditions are heartless

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By Grieve Chelwa

The International Monetary Fund (IMF) has published the conditions attached to the newly agreed programme with the Zambian government. The conditions are incredible, unbelievable, and heartless and basically make for very sad reading. They are even more incredible than I predicted in my radio appearance on Hot FM last December. I spent this morning reading the IMF’s document. Below, and typed up pretty quickly because of work pressures, I summarise some of the most concerning aspects of the “deal”.

The centrepiece of the deal is that the IMF is targeting in their words, “a large, front-loaded, and sustained fiscal consolidation.” Specifically, they want the fiscal deficit to decline from 6% of GDP in 2021 to a surplus of 3.2% of GDP by 2025. And this is largely to be achieved by drastic cuts in government spending over the period 2022 to 2025. Basically, the IMF wants our government to reduce expenditures in the billions of dollars between now and 2025. This, my friends, is the definition of austerity.

How is this reduction in the fiscal deficit going to be achieved? By reducing expenditure on the following:

1. Fuel subsidies are going to be fully eliminated by the end of this month (September 2022). What this means is that our government will no longer protect its people from the vagaries of swings in the international price of oil. What then, is the role of government if not to protect its people from shocks, of which oil price dynamics are some of the most consequential?

2. Electricity tariffs will have to increase (via subsidy removal) and the IMF wants the Zambian government to publish a plan for doing this by December 2022. As I have argued before on this blog, this is going to cause pain among our people.

3. The hugely successful Farmer Input Support Programme (FISP) will be “reformed” beginning farming season 2023/2024. “Reform” is IMF speak for drastic cuts. In this instance, the envisaged cuts are large between now and 2025. My heart bleeds for the hundreds of thousands of small-scale farmers who have largely made our country maize-secure over the last two decades. (Funny thing is that the IMF, in their document, are full of praise for our self-sufficiency in maize production and yet they want us to effectively kill the goose that’s been laying our golden eggs!).

To achieve the fiscal consolidation described above, the IMF also has a plan for increasing revenues. And I imagine you are expecting that their plan is anchored on increases to corporate income taxes (especially on the mines). The answer is no. Their plan is largely anchored on the following, which will largely impact the poor and the middle class:

4. Value Added Tax (VAT): The IMF wants us to “broaden our VAT base” which essentially means limiting the number of goods that are VAT exempt. The VAT is one of the most regressive taxes in the world because it impacts the poor much more than the well-off. Because of this, governments often exempts many products from VAT to protect the poor. The IMF now wants us to do the reverse and do so in quite a drastic way. A table on revenue measures on page 12 shows that VAT is going to be the champion of revenue increases over the medium term — much more so than corporate income taxes and mineral royalty taxes. (Also funny that the IMF is concerned about the regressivity of fuel and electricity subsidies, yet they don’t seem to worry about the regressivity of the VAT!).

5. Table 3a on page 35 shows that taxes on labour income are also likely to go up in the medium term, and go up at a rate faster than taxes on profits (mining and non-mining).

The revenue measures in points 4 and 5 above are really pro-rich measures. Difficult to conclude otherwise.

There’s been lots of talk about how the IMF has reformed from who they used to be in the past and that they now care about the poor because they want us to increase expenditure on the social cash transfer (SCT). I am sure what I have written above should already cast doubt on the “reformed IMF thesis”. Anyway, how much is the envisaged increase in the SCT — a monthly allowance given to the very poor? Well, they advise that the SCT increases from K90 currently to K110 per month. That is an increase from $5 per month currently to $7 per month! I leave it to you, enlightened reader, to conclude whether these amounts are sufficient to protect the poor from the subsidy removals in points 1, 2 and 3 above and from the expansions in the VAT base in point 4.

Oh, on page 1, the IMF says that this agreement will immediately result in a disbursement of $185mn from them to us. A signing bonus of sorts for all our troubles. And it’s quite funny how this “recovery plan” is continuously referred to as a “homegrown plan” when the IMF’s fingerprints are all over it.

Before I sign off, I would like to address my colleagues in Zambian civil society who went along for the ride with the IMF, appeared in many photo ops with IMF staff and largely gave credence to the opaque process that gave birth to such an anti-poor deal. This, my friends, is on your hands and you went to sleep on the wheel when your role was and historically has been protecting the interests of the Zambian people, especially the least among us. Posterity will be the judge, and I am wagering that the judgement will be one of disappointment.

YOU CAN DOWNLOAD THE FULL CONDITIONS BELOW

IMF REPORT ON ZAMBIA’S ECF

About Dr Grieve Chelwa:

My name is Grieve Chelwa. I am currently the Director of Research at the Institute on Race, Power and Political Economy at the New School. From 2018 to 2021, I taught economics at the Graduate School of Business at the University of Cape Town where I was the Co-Director of the MBA Programme. From 2016 to 2017, I was the inaugural postdoctoral fellow at the Center for African Studies at Harvard University. I hold a PhD in economics from the University of Cape Town. This blog keeps an eye on Africa in as far as economic matters are concerned with a bias towards Zambia, the country of my birth. More of my general writing can be found at the blog Africa Is A Country and here and there on the internet. My more academic writing is available on my google scholar page. You can reach me at [email protected] with comments or suggestions. My twitter handle is @gchelwa.

56 COMMENTS

  1. The alternative was zero to very little growth of the economy………..

    No democratic GRZ can survive 2 terms with the state the economy was found in……..there was going to be absolutely no employment created……….

    Atleast with IMF money , things might hurt but a cushion will be created with a growing economy………..

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    • Correct, our economy needs drastic help in order for it to be able to sustain and take care of the Zambian people in the long run. We need to stop thinking short term but rather long term. We will feel the heat now but we will see the benefits later. An economy for the people by the people.

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    • Lobyolo

      Copper prices have declined
      some 15% from the beginning of the year…………..

      You know what companies do to the workforce when their profits decline right ???……..

      yes the make redundancies and cut investments………

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    • The bottom line is that PF put Zambia in a debt trap to the tune of US $30 billion. The loan sharks are now out carve up our country. This is the fault of PF. The sad thing here is that this will drive small scale farmers off the land. When Zambia goes back to the IMF, it will then say the solution is to settle big foreign farming conglomerates or white farmers on that land. This what happened all over Latin America… This is all the fault of PF

    • Low or no taxation on our mines while mounting a vicious tax burden on citizens is a form of corruption. Politicians susequently go to these eneterprises for funding and favours: I scratched your back, you massage mine too.

    • There is not one correct path in Econ. The alternative wasnt zero to very little growth of the economy
      This is exactly what most Zambian economists anticipated. Conditions that worked on developed economies being transferred to a Third world economy. VAT is a very convenient way of broadening the tax base because its difficult for the poor to evade it. The “homegrown plan” was the PF’s and it was rejected. However, Zambia can sneak in homegrown requirements by disagreeing and imposing its own corporate income taxes.

  2. Well Well this sounds serious and hash for low income group, what surprise me is the people who seem to be just excited that the IMF have given zambia money and it is under this government . from the look of things Jobs will be lost during these period cost of essential products will go up then at the end of the day the economy will fail to grow and then IMF case sturdy on zambia will be done.

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  3. Has there ever been a country that prospered after executing IMF requirements? We are screwed if this is what they are imposing on us

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    • Ireland ( where I live) called in the IMF about 15 years ago. There was tough measures & a few tough years but Ireland has really prospered with high growth in the last number of years. You have to take a medium to long term view. Also IMF can make a country take unpopular & unpalatable steps which a government won’t or can’t take.

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    • Has there ever been a country that has prospered by ceding its economy to a small clique of foreign merchants of Asian origin? Not even India has succeeded in such a hair brained scheme.

      As for the IMF, Zambia had NO choice. Lungu borrowed US $30 billion, and left the country prostrate and emasculated as a result of that debt trap, and the IMF vulture is out to pick the carcass

    • Stop spinning stories. Countries in the developed world may prosper after IMF but as economists have pointed out what works in that world doesnt guarantee success in the developing world. Mozambique is stil under endless economic direstarits brought about by IMF. Greece was heavily assisted by the EU. Firstly Eurozone leaders and the IMF settled an agreement with banks whereby they accepted a 50% debt write-off.
      In 2018, Greece successfully exited its bailout programme, after having been forced to demand an astronomical 289 billion Euros in financial assistance from the EU, European Central Bank and IMF. Stop comparing Africa to Europe.

  4. Doc. you have always been against the IMF bailout without you having alternative solutions. It is disheartening to see a fellow economist who is big on criticism based on economic theory without any application of Applied Economics. I would like to see a cost benefit analysis of the IMF programme vs your preferred programme. Then we can talk Economics. I see from your CV that you have no Applied Economics.

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    • We are in US $30 billion debt trap on which we have already defaulted. UPND had no choice but to swallow this terrible pill. This is the fault of PF which borrowed $30 billion in 10 years and proceeded to loot it all

  5. There was no other option but to go to IMF.
    Now that IMF has approved the loan so it
    Makes easy for other countries to help in
    Restructuring our debt.We all know it won’t
    Be easy after the previous regime kept us
    Going with subsidy and borrowing.

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  6. Hahahaha we warned you. Hh is a type of guy to sign anything a whlte man throws at him. You were even saying that pf failed to get a deal. It was not because we were corrupt but because we were not willing to accept a bad deal.

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    • The country was operating beyond the wallet apart from the money mismanaged and stolen by PF Movement. Now is the time to correct things and face reality. @Kaizar Zulu benefited from the stolen money.

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    • Nkana substantiate your claim. Because to date not a single conviction for corruption. Stop living in your dreams and fantasy. You have got a bad deal because your president is educated but not wise

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    • We are this position because your PF party borrowed US $30 billion, on which Zambia defaulted. UPND came into government saddled with debt trap. There was no where else to go but the IMF. The fault for this is 0% UPND and 100% Michael Satan’s PF. Stupid kalya-nyoko Kaizar Zulu

  7. Of course it’s not a good position to be in but we needed it to restructure our debt. We were left little option and we can only hope that after 3 years we will be in a better position with sustainable debt levels

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    • US $30 billion of some of the most terrible loans incurred by PF in on 10 years. That is why are here. We cannot pay that debt, and we have to run to the IMF. This is the fault of PF which found a debt free country, and left deep in terrible debts and free of any money in the coffer

  8. @Spaka September 13, 2021 At 10:38 am

    Topic: Why Zambia still needs IMF Bailout despite the SDR1.33 billion (By Mwansa P. Chalwe snr)

    “….Right now zambia needs a cash injection and the IMF is the most logical place….

    Every loan is negotiable, excessive electricity and fuel hikes are not a must……
    That is why you negotiate….

    If you are dull and reckless , and expect the IMF to do your economic recovery for you , it won’t happen………you have to do the hard work…”

    Now that the IMF LOAN you so vigorously wanted is here, no more excuses for that economic turnaround you so preached about, right?

    By the way, it looks like UPND didn’t listen to your advice and “negotiate” on behalf of poor Zambians. Because what can be more “EXCESSIVE” in electricity and fuel hikes…

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    • Continue:

      …than “COMPLETELY’ subsidies on these items? Quite frankly, I personally don’t see how these measures/conditions will grow the economy to cushion their impact on the poor. Like the article has pointed out, these conclusions sounds like austerity measures that are not meant to grow the economy. If you think Zambians are hurting now…wait until these measures take effect. And apparently UPND is “….dull and reckless… [for letting]… the IMF to do [our] economic recovery for [us] , it…happen[ed]….”

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    • Wow! How Anthony Bwalya came from the backdoor, overlapped and knockout SLUGGISH and SLEEPY established media CRONIES of UPND to become HH’s Right Hand Man & Press Aid. Wow! How Anthony Bwalya came from the backdoor, overlapped and knockout SLUGGISH and SLEEPY established media CRONIES of UPND to become HH’s Right Hand Man & Press Aid.

      YAMBAYAMBA @

      SPAKA@…….. is delusional and narcissistic. He always post comments only to contradict himself. He does not think through.
      You are not the first one who has shamed SPAKA by retrieving old comments. Nice one though.

    • Yambayamba

      I have all the confidence in the president to steer zambia to properity……….

      A countries destiny lies squarely with the quality of leadership…….

    • Yambayamba

      I have all the confidence in the president to steer zambia to properity……….

      A countries destiny lies squarely with the quality of who leads…….

      #9.3 wow…….

      How have I contradicted myself with what yamba has pasted ??

      Some people don’t understand English or the direction of a sentence…….that’s why you end up fighting over what English words mean in the constitution with criminals instead of arguing about the crime……..

    • What yamba has paisted from me………..

      I meant even if you go the IMF route, ypu still have to work hard and sacrifice………….

      It is not money in your pockets in 3 months……….

  9. “Imagination is the organ that allows us to thrive on the cusp between danger and opportunity; it is an adaptation to the reality of time. We are superb hunters and gatherers and processors of information, but we are far more than that: We have a capacity for imagining situations that are not implied by the data we have. Our imagination lets us anticipate dangers before they’re imminent, which means we can plan to meet them”-Lee Smolin

  10. PF thieves are now crying foul because the fraud and corruption has been cut. They have no more easy money which they splashed around every week end. The requirement IMF is asking the government to implement is simply efficiency and Value for money in the use of public. This was the the same requirement in the 90s with SAP. I don’t know why this writer is being an alarmist and sensationalising the issue as if this is something new.

  11. PF thieves are now crying foul because the fraud and corruption has been cut. They have no more easy money which they splashed around every week end. The requirement IMF is asking the government to implement is simply efficiency and Value for money in the use of public funds. This was the the same requirement in the 90s with SAP. I don’t know why this writer is being an alarmist and sensationalising the issue as if this is something new.

  12. This is how IMF and UPND swindled Zambians….they knew if they published these conditions before the loan is approved 99% of Zambians should have said NO…..IMF is very deceptive and predatory …..kikikikikiki not so fast …blah blah blah blah 1.3 billion dollars kansi ni malabishi….we can raise 1.3 billion very easy using our own resources

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    • UPND had nothing to do with this you dumb ignoramus. The UPND came into government and found Zambia in a US $30 billion debt trap, all incurred by PF in the last 10 years. PF borrowed everything offered from them, and these were some of the worst loans imaginable. The 3 Euro bonds borrowed by Michael Satan in 2011, 2012 and 2013 were in the amount of US $1.2 billion, $ 1 billion and $750 million to be held for 10 years. The terms were that Zambia would pay $12 million, $10 million and $7.5 million a month on each other respectively, for 10 years. At the expiration of each loan 10 year term, Zambia would pay the original borrowed amount of $1.2 billion, $1 billion and $750 million in full respectively, because these were non-amortising loans. This was on top of other money borrowed from…

  13. And yet the Western World knows how to make money,,,through Taxes,,,am an American Citizen and i pay alot if Taxes…..The IMF is just a block away from the United States Treasury,,,,,they’re all connected in terms of milking money…Zambia is in deep shiiiit…dont say i didn’t warn…go ask Kagame about IMF the predator

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  14. Spaka someone tells you he will give you a loan on condition that he impregnates your wife…..and you cant tell your wife about the conditions of your kaloba…and after you get thev loan he comes knocking at your house as per his loan condition,,,,gets your wife pregnant and you still have to pay him back his money and also he is HIV positive,,,,,kikikikikiki….by the time you finish paying off your loan both you and your wife will be dead…HIV

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  15. @9.1 Yambayamba
    I will be one of the first casualties of this IMF devilish loan deal…i will publish the bill for my 3 phase underground power with their new revised ZESCO tarrifs as per makaka IMF….gullible Zambians do you seriously think the Western World wants Africa to prosper….come on now….they’re goal is to make Africans suffer….what is US$1. 3 billion….do you think Zambia as a country can’t raise this little pocket money

    • Those UBER customers of yours who feed you such crap need rehabilitation, ……………

      50+ years on you still have a complex ………….

      Shame………….

  16. People with bleeding hearts, and hang up on the word drastic don’t make for objective analysts. They should make art: make music, write poems, paint etc, where evocation of emotion is a primary motivation.

    There is no smooth painless road to economic self-sufficiency. We need clear thinking cool heads to manage the process based on available data and not emotions.

    It will help if every strata of society is made to share in the pain of recovery

  17. How can you run an economy with debt at 126% of GDP? What is your alternative solution? If you have leaders who know what they are doing, I see the economy of the country making a huge turn around for the better. Other borrowed like there was no repayment, which left the economy in a big mess.

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  18. ba Spaka the president probably knows undergraduate economics where the assumption is that all things are equal… in life other forces work in opposite directions. Its like a soccer final where the other team play in the same game at the same time. Educate me, what level of economics does HH have. Economists are good at analysis not predicting or directing..

    • Predictions are guess works based on scientific evidence. Future assumptions don’t always come out as expected. GDP growths are just forecasts which may fail to materialise.

  19. IMF and the World Bank feature in John Perkins’ book, ” Confessions of an Economic Hitman,” as the two Western organizations that have been used to undermine and destroy poor countries economies. They work for and serve the interests of the West. If you think they care about poor third world countries’ development, then I have 10 acres on the moon to sell you.

  20. Until Africans learn to sit down to solve their problems, they will forever be beggars in their own sovereign land.

    1. buy Cheap Oil from Russia. It solves point one and two. Don’t be afraid of sanctions. India and Europe is buying anyway, why can’t you. Or buy through BRICS member (South Africa)

    2 Don’t decrease the farmer input program. Rather increase it.. very key

    3. Let IMF go, they won’t help you. They don’t intend to.

    4. Leaders (Politicians) sacrifice a lttle bit of their comfort.

    5. Focus on developing the local economy. Things will work out

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