By Hakainde Hichilema UPND President and Economist
We welcome the Government’s realisation that Zambia has fallen on very tough times that require urgent policy actions and strong political will. The measures being proposed in the statement are the same ones from former Finance Minister Felix Mutati’s Economic Stabilization and Growth Programme (Zambia Plus), which we even alluded to a few days ago in our advisory on fiscal consolidation. Why the Government departed from Zambia Plus in the first place remains a wonder. We can only pray that these Cabinet decisions are not too little too late given the current economic deterioration and that this time around, the Zambia Plus measures will be actioned with seriousness.
A few things are worrying regarding the text of the Statement. For one, in part, it reads: “Cabinet deliberated on the growth prospects… in 2019 and over the medium term… Cabinet noted the negative impact of climate change that has affected agriculture and electricity production and the tight liquidity conditions… [and] the impact of the trade war and uncertainty around BREXIT…”.
We strongly believe that critical self-reflection and honesty are key for solving economic problems. The Minister’s statement is however far short on both self-reflection and honesty. If climate change related agriculture and electricity production are the core problems, why did Cabinet fail to propose structural reforms such as investments in climate-smart agriculture (e.g., solar-power groundwater irrigation projects instead of urban roads projects) and energy projects (solar, biofuels, etc. projects instead of expansion of rain-dependent hydro power installations)? More so the tariff structure for independent power producers has not attracted investment in this sector, because Government has not been willing to negotiate a cost reflective tariff.
Why did Cabinet fail to acknowledge that the adverse liquidity conditions are a result of poor fiscal management, specifically the high borrowing without spending plans and the resultant poor quality of public investment, especially infrastructure spending? Why is Cabinet failing to commit to curbing the excessive infrastructure project spending with the same strictness imposed on Ministries, Provinces and Spending Agents? The claim that “projects that are of an economic nature will not be cancelled… [to spur a] resumption of growth” is a sham. Analysis shows that despite the Government’s excessive spending since 2012, Zambia’s Incremental Capital-Output Ratio has deteriorated continuously, showing increased inefficiencies or poor investment quality during the PF era. The PF Government simply needs political will to stop its obsessive and gluttonous infrastructure spending habit and to stop the high levels of corruption never seen before in the history of our country.
Bank of Zambia (BOZ) has recently analysed Zambia’s potential output and has found potential real GDP growth has fallen from 7-8% per year in 2008-2010 to about 4% per year currently, meaning that the economy can no longer grow at more than 4% per year. Also noteworthy is that the IMF has recently revised the growth rate estimate to 3.1%. The quality of spending, which focuses only on infrastructure and neglects private sector development is the main reason for this productivity and output decline. But rather than undertaking reforms to support private sector re-energization and development, PF is fixated on roads.
While we would hope that the Zambia Plus policy measures that Cabinet has reiterated will now be implemented with seriousness and commitment, we cannot help but worry about the low levels of political will in the PF administration. Austerity was repeatedly announced in 2016, 2017 and 2018, but with no serious intent to change policy behaviour. Here we are again with the Cabinet making the same old announcements.
But we are not the only ones who are worried about the PF’s lack of seriousness. Last week, International credit rating agency Moody’s downgraded Zambia’s credit rating and revised its outlook to negative. In parallel, the International Monetary Fund (IMF) issued a statement saying: “However, the latest borrowing plans provided by the authorities [Zambian] continue to compromise the country’s debt sustainability and risk undermining its macroeconomic stability and, ultimately, living standards of its people.” The IMF said this, going on record that the PF Government is undermining the living standards of its people!!! Most likely, the PF will soon say: “unpatriotic HH has told Moody’s and the IMF lies, now they are saying these bad things against the PF Government and spreading fake news”.
One true hallmark of great leadership is the ability to admit mistakes instead of always trying to find scapegoats. Another is genuinely listening to advice. In this regard, we would like to offer three pieces of advice to the PF Government again:
a) Own up to your past mistake so you can genuinely learn from them, and maybe we can then all move past them toward sincere and serious problem solving together;
b) Take our advice in good faith as it is offered in good faith; institute the well-rounded set of corrective policy and structural reform measures we have been advocating for so long now. Draw on our expertise, strategic thinking and advice; it will help this country and our people.
c) The need to stop the rampant theft of people’s resources by fighting corruption meaningfully/ significantly and not the
current symbolic/half hearted way which smacks of complicity by those in authority.
We are not doing this for political mileage but out of genuine care for this country’s citizens, now and in the future. We stand ready for the economic Indaba we proposed previously.
10th May 2019
URGENT NEED FOR DIALOGUE ON ECONOMIC RECOVERY
There is no need to pretend anymore about the ongoing economic crisis facing the country. We are all fully affected regardless of our political persuasion.
Instead of wasting time and resources at the ongoing PF engineered National Dialogue Forum, well meaning citizens must urgently come together and rescue this country from the economic sabotage.
The agriculture sector is at an all time low, mining firms are shutting down critical operations resulting in massive job losses, the cost of living and doing business keeps escalating, inflation is increasing, the Zambian currency is tumbling against major currencies plus many other depressing issues.
On the other hand, corruption is getting worse and those holding instruments of power are not giving any direction on where we are headed as they cannot face the citizens by way of a national address to give hope.
The country is running on autopilot hence the need for some form of leadership by those of us who care for the country and can offer some policy alternatives.
Zambia belongs to all of us, so we must get concerned and take remedial measures to address the distressing economic situation in the country.
This is the kind of dialogue that must be promoted as no one has a monopoly on knowledge.
People from various sectors including marketeers, drivers, miners, students, youth and women, should all be given a platform to offer solutions.
The nation cannot be subjected to the kind of circus that is currently going on at the PF driven national dialogue when our economy is in a free fall.
Let’s put our heads together and address the ongoing economic collapse.
The International Monetary Fund has strongly advised the Zambian government to avoid contracting new non-concessional debt to reduce risks of depressing the economy.
It has also warned that the significant build up in domestic expenditure arrears presents a risk for the financial sector as it is weighing on households and businesses.
A team from the IMF has issued a statement at the end of 2019 Article IV visit in which it further recommends up-front and sustained fiscal effort.
“To reduce risks, staff recommended a large up-front and sustained fiscal effort, including: avoiding contracting any new non-concessional debt, steps to raise revenues, halting the buildup of new arrears, and aligning the pace of spending on well-targeted public investment projects with Zambia’s available fiscal space,” stated the team led by Mary Goodman.
During their visit between April 16 and April 30, the team met Minister of Finance Margaret Mwanakatwe, Bank of Zambia Governor Dr Denny Kalyalya, other senior officials, representatives of the Parliamentary Committees on budget and on trade and national economy, as well as financial market, business, and trade union representatives, civil society organizations, and development partners.
The mission, according to Goodman, will prepare a report of the Article IV consultation which will be discussed by the IMF’s Executive Board in the coming months.
The IMF said at the conclusion of the mission, discussions focused on policy options to lower debt-related vulnerabilities and support economic growth.
This should include avoiding contracting any new non-concessional debt, take steps to raise revenues, halt the buildup of new arrears, and align the pace of spending on well-targeted public investment projects with Zambia’s available fiscal space, Goodman said.
The IMF said its staff and Zambian authorities took stock of recent economic developments and the future outlook and prospects as part of the 2019 Article IV consultation and raised concerns over large fiscal deficits and rising debt service.
“Our discussions on Zambia’s 2019 Article IV were frank and collaborative. This has been a valuable opportunity to take stock of the current situation and outlook for the economy and to gain a shared appreciation of current challenges and policy options going forward,” the IMF said.
It has further projected that growth is projected to slow from 3.7 percent in 2018 to 2.3 percent in 2019, lower than earlier envisaged due to the impact of the drought on agricultural production.
“Inflation is close to the Bank of Zambia’s upper band and is projected to rise over the course of 2019. Reserves stood at 1.7 months of imports at end-March 2019. Zambia’s development strategy targeting a rapid scaling up in infrastructure spending has resulted in large fiscal deficits, financed by nonconcessional debt,” IMF stated. “The 2018 budget deficit (commitment basis) reached 10 percent of GDP (7.5 percent on a cash basis), and total public and publicly-guaranteed debt including domestic arrears at end-2018 was 73.1 percent of GDP.”
It says higher interest costs on foreign debts owing to the kwacha’s depreciation has further squeezed government spending in other areas.
“With the recent increase in yields on government paper and higher interest costs on foreign debt due to the depreciation of the kwacha, government spending in other areas is being squeezed, including on social programs and transfers to local governments. The significant buildup in domestic expenditure arrears is weighing on households and businesses and presents a risk for the financial sector,” IMF stated.
“…With a diminished impact of the drought over time, and progress in addressing arrears, there is potential for growth to accelerate over the medium term. The mission welcomed the enactment of the Public Finance Management Act in 2018, which should strengthen management of public resources once the accompanying legislation has been enacted. Specifically, the passage of the Planning and Budgeting Bill will be important to enhance the project selection/appraisal process while the revised Loans and Guarantees Act would provide the necessary framework for medium-term debt management.”