The IMF Bailout Loan is Here: What Next?

By Sean Tembo – PeP President

1. During campaigns, Hakainde Hichilema made a solemn promise to the Zambian people that if he is elected as President, he will create employment and reduce the cost of living. Believing his promises, the people of Zambia elected him President. The majority of those who voted for him are not UPND members but just ordinary independent citizens who want a better Zambia.

2. After he was elected President, Hakainde Hichilema told the people that his economic turnaround plan was premised on the IMF bailout loan. And that as soon as he gets the IMF bailout loan, he will be able to deliver on his promise of employment creation and reducing the cost of living. The Zambian people patiently waited for him to get his IMF bailout loan.

3. Last month, President Hakainde Hichilema finally got his IMF bailout loan, amidst pomp and fare among his fervent supporters. The President used the occasion to boast of how the IMF and other multilateral institutions have faith in him compared to his predecessor. However, what the President omitted to explain is how and when he will begin to reduce the cost of living, now that he has obtained his IMF bailout loan?

4. Some of us have disagreed with President Hakainde Hichilema’s economic management practices from day one. Just when he was inaugurated, we told him that an IMF bailout loan cannot be used as a vehicle for reducing the cost of living and creating employment for the people. We told the President that as a matter of fact, putting the country on an IMF programme will bring about the exact opposite; the cost of living will go up even further due to removal of subsidies, and jobs will be lost due to the expected reorganization of our parastatal companies.

5. We advised the President that if he expected to deliver on his promises to the Zambian people of reducing the cost of living and creating employment, he needed to formulate a homegrown economic turnaround plan as a vehicle for achieving those goals. That he must forget about the IMF bailout loan as it will not take this country anywhere. We further told the President that the formulation of such a homegrown economic turnaround plan must not be a preserve of a few technocrats at Ministry of Finance, locked in their offices, but must be a product of sincere multi-stakeholder engagement.

6. We further advised the President that the first step to turning around our economy should be to avoid additional borrowing whether by domestic debt, external debt or domestic arrears. And that the nation needed to leverage on the high copper prices on the world market to collect as much tax revenue from the mining sector as possible. That we needed to fund our national budget with internally generated resources without borrowing.

7. However, in the past 12 months or so, President Hakainde Hichilema has done the exact opposite of what we advised him. Instead of collecting as much tax revenue from the mines as possible, he has decided to give the mines a defacto tax holiday which is costing the country billions of dollars per annum in lost tax revenues. Instead of making the national dress according to the size of the cloth available, he developed a bloated 2022 national budget, 46 percent of which needed to be funded by debt. Since he could not acquire any more foreign debt, apart from the IMF bailout loan, he proceeded to utilize domestic debt and domestic arrears to fund the 2022 national budget.

8. When the PF administration left office in August 2021, the country’s domestic debt (government bonds, treasury bills etcetera) was about K80 billion. As we speak right now, it is about K190 billion, an increase of K110 billion within 12 months. In fact our foreign debt bondholders recently told off the IMF that the Fund cannot only talk about restructuring Zambia’s foreign debt while they remain mute about the domestic debt. Suffice to say that this K110 billion increase in our domestic debt within a short period has the overall effect of crowding out the private sector because banks, insurance companies, pensions and other institutional investors would rather lend to Government that lend to the private sector.

9. In essence, President Hakainde Hichilema has further killed the private sector in Zambia. With a dead private sector, one cannot expect to reduce the cost of living or create employment. The hiring of a few thousand civil servants such as teachers, medical personnel, police officers etcetera is just a facade. Real employment creation can only be achieved by the private sector, which has been killed.

10. Lastly, it is necessary to mention that the type of economics which the President and his team practices is very questionable. They are under the illusion that if they use our foreign reserves to reduce the exchange rate, then the prices of goods and services will automatically come down. That only works on paper, in reality it does not work like that. So far, the Bank of Zambia has pumped in more than $300 million to try and support the Kwacha exchange rate, but despite the exchange rate hovering around K16, there is no evident reduction in the prices of goods and services. To the contrary prices have continued to rise. This re-echos the advice that we gave to the President about a year ago that the only sure way to turnaround our economy, create employment and reduce the cost of living is by facilitating the growth and expansion of the private sector and collecting all the tax revenue that is due to us. IMF bailout loan + tax holidays + high domestic debt + killing the private sector = high cost of living and high levels of unemployment. The good thing however is that it is not too late for President Hakainde Hichilema to reflect on the advice that we give him. He must put his ego aside, change course and do what is right for the Zambian people.