Public outcry at $1.75billion debt
For many months, a large section of the Zambian public concerned with current and future development of Zambia has expressed concern at the high rate of government borrowing from both the banking system and from abroad(Eurobonds, Chinese Loans, etc). For many months, however, these concerns have fallen on deaf ears, with a justification from the PF Government—henceforth ‘authorities’—that we need to build roads, as these would open up development. The roads funding was then taken to State House where a PF cadre has since been made chairman to oversee the allocation of contracts.
Debt has swelled up, with $1.750billion acquired through the Eurobond since 2012. At the same time, however, the exchange rate has depreciated massively, making the kwacha equivalent of the debt even higher, and then the budget has fallen into higher than anticipated deficits.
After many months of public outcry, and government arrogant responses, the most sensible statement—or paragraph—came from the Secretary to the Treasury when he stated that the PF-Government intends to minimize on the rate of borrowing both domestic and external in the near future for the betterment of the country’s economy. Finally, word has gotten to the relevant authorities, and if they stick to it, this is commendable.
Sensible PF response prompted by IMF delegation
I have argued before here many times that we cannot borrow our way out of poverty. The PF-Government thought they can borrow without regard to ability to pay, and spend carelessly on by-elections and prestige projects. Borrowing too much is the cause of Zambia’s problems, not the solution. It was the cause of Zambia’s problems many years ago, and some of the negative consequences we see today are a result of bad debts acquired many years ago. It is therefore, a breathe of fresh air to see the government finally coming back to their senses and promising to reduce borrowing.
But one would wonder the sincerity of these promises. Firstly, these promises to reduce borrowing are only being made in the presence of the IMF’s mission from Washington. One would ask the question: Does it have to take an IMF delegation all the way from Washington to Lusaka for the government to listen to its people’s concerns? Is government making these promises of good economic governance to please the IMF delegation? Or did someone make those promises under duress? Or is one just playing to the gallery?
The IMF’s assessment of the state of our economy is consistent with our concerns, and therefore its view is in no way innovate nor is it any different from the many Zambian views express consistently over the past year. But why would Sata’s PF choose to listen to the IMF rather than his own people?
But then, it is reassuring that the government is acknowledging its irresponsibility in economic governance in failing to control public finances, and leaving our country exposed to the jaws of the international money markets—the celebrated Eurobonds.
PF has conveniently asked IMF to come back just before the Budget
The PF-government has now asked the IMF for a follow-up mission in September—conveniently before the budget—to discuss an economic program that could be supported by a Fund arrangement. What this basically means is a further potential loan under the IMF’s Extended Fund Facility (http://www.imf.org/external/np/exr/facts/eff.htm), which comes with conditionalities that many anti-IMF pundits have accused of being the causes of our nation’s problems in the past. But then, let us ask ourselves: Who has created the economic chaos we are in? Who has failed to run the economy? Who has asked the IMF to come back? The answer is PF and its economic governance mode and managers. The problem that the IMF has noted with our economic state which has compelled the PF’s Chikwanda and team to ask for help in September were not imposed on us by some alien or angry act of God, no, they were created by the PF.
We can only wait and see what the IMF has to offer to Chikwanda and team, but clearly, if what we are experiencing is all there is, then the reality is that the PF does not have the technical ability nor political capacity for that matter, or indeed both to formulate and launch real economic reforms in the fiscal, monetary and exchange rate policies that are needed to change the direction of the economy. The short-term political risks to launch such a structural reform programme are too great to be ignored for such a populist government whose main concern is to remain popular even at the expense of inclusive and sustained national growth that inspires confidence for the future.
If what is being cooked and prepared for as an “economic program that could be supported by a Fund arrangement” is indeed an EFF loan, then we may face problems as developing a consistent long-term programme of policy reforms to strengthen the foundation of the economy is not that simple, and as seen under PF, there is a dearth of skills and will to embark on any serious and meaningful policy reform. Its implementation would be even more difficult politically by a government that will be facing an election in just under 2 years.
With all the above, perhaps it would be wise for the Ministry of Finance to stop living in denial of the true state of the economy. The statements later attributed to the Ministry of Finance’s facebook page that all is well in Zambia citing among others that people are building houses is rather too shallow and disappointing, and paints a very bad image on the ministry of Finance’s communication team. One wonders what that statement was intended to achieve when it came barely a day after the government asked for the IMF’s support owing to its failure to govern the economic fundamentals well.
But perhaps we shouldn’t lose much confidence yet, and hope that with the IMF’s follow-up mission in time for this year’s budget will see a miracle reform package by the finance minister. Until then, we commend the government for their open promise to reduce borrowing, and hope they stick to it.
By Hjoe Moono
