The combined effects of poor economic management, corruption, prolonged power cuts and the COVID-19 pandemic have caused a severe deterioration in economic outcomes in the first half of 2020.
Shortfalls in tax revenue collections, intensification of corruption and heightened debt vulnerabilities continue to narrow the fiscal space to grow the economy and provide jobs, especially for our energetic youth.
At the current pace, Zambia risks reaching a precarious point at which a disorderly fiscal adjustment becomes inevitable.
To avoid a prolonged and painful recovery that this situation would entail, Zambia must not waste any more time in using the narrow window of opportunity that remains.
As stakeholders in the Zambian economy, our offer for free advice to the PF administration on debt and other economic management issues still stands. Our free consultation will save critical resources.
Since 2012, our advice on debt management has been as follows:
(a) Stop the careless, unplanned and excessive borrowing;
(b) Strengthen the legal and regulatory framework for debt procurement and management;
(c) prepare a robust plan for the repayment of the enormous debt, including the establishment of an adequately funded sovereign wealth fund.
Failure to heed our advice has brought us to this point – an unsustainable debt path that casts a shadow on the economic prospects for our children.
We know we were right. Our first 10-year Eurobond was issued with a 5.625 percent yield in 2012, and nine years later, the yield has increased to over 50 percent. This means that our Eurobond is of junk status, reflecting a heightened risk of default. Enlisting the services of debt advisors is further confirmation of the dire situation we are in.
Our current advice to the PF Administration as the country seeks to restructure our debt, is that a successful restructuring that provides enough debt relief relies on taking immediate measures to restore debt sustainability and restore stability in the economy.
In this regard, our high-level advice is that with immediate effect, strengthen oversight and the overall framework for debt procurement, monitoring and reporting. Proposed changes in Bill 10 will only weaken the oversight role of Parliament, further undermining this effort.
The procurement of non-concessional debt must stop. The PF Administration must end the situation where their alleged ‘moratorium on new borrowings’, has seen some Ministers commit the country to new loans. For now, we will not comment on the role of the Minister of Finance in debt procurement, as the issue is in court.
Importantly, the PF government must commit itself to transparency and full disclosure of all contracts that have been signed. Transparency and accountability, which are the hallmarks of good governance, will build confidence among our creditors, especially in the G20 Debt Service Suspension Initiative (DSSI) to which Zambia has sought participation. Regarding the DSSI, we further implore the PF Administration to adhere to the requirement to direct financial resources toward mitigating the health, economic and social impact of the COVID-19 crisis, and call for strong safeguards to protect the public resources against theft.
We also take this opportunity to implore Zambia’s creditors, official and private, to provide relief to the country through this initiative. It will not only bring some relief to the multitude of Zambians struggling to cope under these challenging economic times but also improve the country’s repayment capacity.
Of great concern to us is that government expenditure continues to rise in the context of significant revenue shortfalls yet without major changes to the National Budget. The government recently announced that while revenues have fallen by K20.8 billion, expenditures have risen by K20.0 billion, including an increase in debt service by K8.7 billion. Current measures to address this shortfall do not go far enough.
We implore the PF Administration to revise the 2020 Budget and undertake necessary reforms to make a real impact on lowering runaway expenditure. Of note is the need to eliminate all inefficiencies in the Farmer Input Support Programme (FSIP) to reduce its fiscal burden of this initiative, while improving the targeting of poor farmers. We also highlight the inefficiencies in the operations of ZESCO that tend to shift losses towards the taxpayer.
We therefore encourage the government to keenly look into this and other areas where savings can be made.
Lastly, subscribe to an IMF staff monitored program, commit to undertaking both structural and quantitative benchmarks.
In rebuilding the economy, we are happy to engage fully and continue to provide the advice we have been giving you for the last nine years. We have one Zambia and no other country to run to.
Our team is ready for this undertaking. Together we can.