The Open Letter to the President by former Finance Ministers and Economic Advisers to former Republican Presidents has sparked debate on whether or not Zambia should go for an International Monetary Fund (IMF) program.
Former Finance Ministers Dr Situmbeko Musokotwane, Ng’andu Magande and Felix Mutati and former Commerce Minister Dipak Patel as well as former Bank of Zambia Governor Dr Caleb Fundanga and former Economic Adviser to the Republican President Dr Moses Banda wrote a joint letter to President Edgar Lungu urging him to go for an IMF package to help to resolve the country’s debt crisis and restore confidence in the economy.
The bottom line is that with or without an IMF package, Zambia will still need to bite the bullet in order to come out of its economic crisis.
The huge external and domestic debt estimated at over $20 billion is too much for an economy whose Gross Domestic Product ( GDP) is roughly $28 billion. The $20 billion is made up of about $12 billion external debt and an estimated $8 billion internal debt. In layman’s language, it simply means that of all the goods and services produced in the economy estimated at $28 billion, $20 billion will go towards loan repayment. Only $8 billion is left to run the country. The country is simply suffocated by debt. It cannot survive under such circumstances.
Some people have argued that the country has not defaulted on any loan repayment and other obligations so far. This is a fallacy. The government owes a lot of local contractors and suppliers of goods and services whom it has failed to pay. The first Eurobond repayment of $750 million is due in the year 2022. The other Eurobond of $1.2 billion is also due in 2023. Where will government find money to repay the Loans? In the past few years, government attempted to create a sovereign fund where some money will be set aside to help repay the loans. They have lamentably failed to achieve this objective. What will happen is that vultures will start grabbing Zambia’s assets to repay the loans.
We , therefore, require to hold the bull by its horns to tame it.
As UPND, we have openly stated that there is need to dismantle this debt mountain in order to give breathing space to the economy. How? First, there is need to stop heavy borrowing. Put a moratorium on debt ,as some experts like to call it. Zambia has found itself in this debt trap because of the Patriotic Front government’s huge appetite to borrow.
Second, get rid of expensive debt and replace it with cheap debt. Economists call this as debt restructuring. We have seen the PF government preferring to go and borrow from the commercial window where interest rates are very high. They did this when they went to get the Euro bond. They deliberately avoided multilateral institutions like the World Bank which lends at very low interest rates. They also avoided getting loans and grants from bilateral donors such as individual countries in Europe. Instead, they went to China to mortgage the country.
The third issue is that if the country has to borrow, it must borrow for investment and not consumption. The disaster we find ourselves in Zambia is that the PF government borrowed for consumption, to establish new districts , buy presidential jets, fly around the world in business class, hold workshops, conferences and spend on bye-elections. As a result, these activities have not generated any income to help repay the loans.
The UPND in government would not allow such irresponsible and reckless borrowing. If the PF government went to the IMF today, they will be told to manage the country’s debt properly if they want funding from them. Can the PF government bite the bullet?
The second issue which needs to be tackled with or without the IMF is financial indiscipline. It is financial indiscipline that is contributing to high inflation, high interest rates, high exchange rates , high unemployment and low GDP growth.
Many national and international experts have analyzed the problems in the Zambian economy and concluded that the problem is failure to adhere to sound fiscal policy. There are two important policies that impact on the economy. These are the monetary policy and the fiscal policy. The monetary policy is to do with the country’s currency, foreign reserves, exchange rate, interest rate, and banking system managed by the Bank of Zambia. The fiscal policy has to do with financial matters managed by the Ministry of Finance such as revenue and expenditure. Whereas, the monetary policy appears to be tight, it is being disturbed by indiscipline in the manner the fiscal policy is being managed. For example, in order to satisfy the growing appetite to spend, government borrows domestically by issuing treasury bills and government bonds. Money that is supposed to be borrowed by the business community to invest to grow the economy and create jobs is instead borrowed by the government for recurrent expenditures. This results in crowding out the private sector, pushing interest rates and inflation up. Apart from issuing Treasury bills and government bonds, the government resorts to deficit financing through the banking system. In a layman’s language, when government knows that it is broke, they just create more money to meet their obligations. Deficit financing has been growing over the years under PF rule from as low as 2 percent of GDP to over 7 percent of GDP.
From time to time , the government has pronounced austerity measures to curb excess expenditure. But due to financial indiscipline, these austerity measures are only on paper. In reality , government officials continue to swim in luxury, flying first class, sleeping in five star hotels, hosting delicious luncheons, holding workshops , creating trips and drawing allowances. Government continues to create new districts, bye-elections, embarking on a new voters register gobbling millions of dollars, establishing a new national airline and new airports and buying state-of-the art presidential plane.
The inability to control expenditure is killing the economy. When UPND forms government, the priority is to cut wasteful expenditure. The idea is to make savings that can be invested wisely.
If the PF government went to the IMF today, they will be told to stop its financial indiscipline before accessing the money. Will the PF government agree to bite the bullet?
The third issue that is bringing down the country is corruption. The corruption perception index for Zambia is continuing to worsen. Examples of actions perceived to be corruptly done are the 42 fire tenders, purchase of ambulances, construction of 48 houses without an owner, export of mukula tree and construction of the Lusaka- Ndola dual carriage way.The issue about corruption is that resources that were used to corruptly acquire goods and services could have been saved to utilise them wisely for the common good instead of going into individual pockets.
One of the most important programs for the UPND in government will be to fight corruption. We are sure that with corruption under control, the economy will improve. We are also aware that international lending institutions such as the World Bank and the IMF do not tolerate corruption. If the PF government goes to the IMF for a bail out, they will be told to take serious measures against corruption. There is no way the IMF can pump its money in a corrupt economy where the government is encouraging the concept of UBOMBA MWIBALA.
There is actually nothing wrong with the IMF if they asked us to put our house in order and fight corruption. But will the PF government agree to bite the bullet?
The fourth issue that the country is grappling with is democracy and the rule of law. It is now established that there is a link between democracy and development. We cannot be expected to develop faster when people’s freedoms and human rights are trumped upon. The UPND government will find it a pleasure to restore people’s rights and freedoms in Zambia. It is unimaginable that more than 55 years after independence, people are still fighting for their rights of assembly because of the Public Order Act, that people should still be crying for media freedoms , that people should still leave under fear of repression from party cadres and people should still have their rights violated by government because of holding a divergent view or belonging to the opposition.
If an international lending institution like the IMF puts the respect for human rights and freedoms as a condition for getting their money, what is wrong with that?
If the IMF thinks media freedoms are under threat because the government closed The Prime Television, will that be baseless?
If the PF government goes to the IMF today and they are told to restore human rights and freedoms, will they bite the bullet?
The bottom line is that Zambia has to put its house in order for sustainable development to occur. Many of the conditions that the IMF would be prescribing for Zambia if the country went there are things that we should already be doing on our own to develop our country.
PF is to blame for taking the country backwards to the years of HIPC ( Highly Indebted Poor Countries) initiative. Many leaders worked so hard yo have Zambia’s debts written off. HIPC was a tough period when people were told to tighten their belts. It is sad that the PF are taking us back to that nightmare.