The International Monetary Fund (IMF) says Zambia has the highest debt levels in Sub-Saharan Africa.
And the IMF says the relationship between the IMF and Zambian authorities is “almost a saga”.
Speaking at the IMF Sub-Sahara Regional Economic outlook in Lusaka today, IMF resident representative Dr Alfredo Baldini disclosed that whilst Zambia’s public debt levels had been increasing rapidly over the years, the country’s economy was growing at a very low pace.
“Public debt unfortunately has been rising rapidly across the region, this is not just for Zambia only so there is need for African countries to diversify their economies even though this is a complex issue on how to diversify. The growth of the economy in Sub-Sahara Africa has been decreasing from 6-7 per cent to 3-4 per cent with an exclusion of South Africa and Nigeria because these are the two biggest economies of the region. Zambia’s public debt has been rising on unsustainable pace and now there is a big risk of debt distress in Zambia which has been driven by the large fiscal deficits. Zambia’s public debt is much higher than the rest of the countries in the region and its economic recovery is growing at a very lower pace which is very worrying,” Dr Baldini said.
He said there was need for fiscal consolidation as the debt would not just disappear overnight.
“So this is very unfortunate because it means that Zambia needs to tackle fiscal consolidation and of course, with an increasing debt stock, there is an increased servicing and so Zambia has got a lot to pay back in terms of debt. Some of this debt is due to non performing loans contracted by households and individuals from banks and there is need to put up plans for fisical consolidation because these debts won’t just disappear overnight, they will have to be serviced,” Dr Baldani said.
And Dr Baldini said Zambia’s relationship with the IMF was almost a saga, adding that the country’s debt levels were scary.
“I wouldn’t like to go into those details but the relationship between IMF and the [Zambian] authorities is almost a saga now. It’s important to keep the background very clear that surely the IMF has been engaging with the authorities over the last year and particularly after the elections. So we did allow for good work to be done by putting the details together but then both of us we realised that the ambitious borrowing policy of government was inconsistent, we think that they need to take that trajectory to a moderate level to basically pave way for the possible fiscal consolidation and on that note what is being done now is to ask the authorities to come back now with a revised plan. You need to reduce on borrowing because as it is now, the levels of debt are very high and that is actually scary and worrying for the Fund because there is a lot that this country has to pay back,” he said.
He said the IMF was looking forward to the enactment of laws which would make the loan acquisition more transparent.
“So unfortunately, we are not there yet, we haven’t agreed on anything. Government needs to refocus and going forward, we are very much interested in listening. We know that the Minister of Finance has been constantly saying that there is no more concessional borrowing but particularly we want to see the implementation of the legislative process that government and the Ministry of Finance is announcing about the loans and guarantees to be enacted. So we are looking forward to that legislature to be passed in Parliament so that there’s going to be more transparent. So I won’t say more about the IMF programme for Zambia but we are in contact and we are in dialogue,” Dr Baldini said.
“Unfortunately, the challenge in Africa and in Zambia particularly has been the failure to realise the manufacturing of products related to your commodity. You don’t do much with your copper here other than exporting the raw material and it is unfortunate because that would actually increase productivity in the value chain. If you could start producing something out of your commodities then there would be some realisation of revenue through exports and that could contribute to the GDP but that doesn’t happen.”
And Ministry of Finance Permanent Secretary Mukuli Chikuba said government working hard to control its appetite for borrowing.
“Government has come up with a number of measures to ensure that the debt distress is dealt with. As a country, we have had a number of challenges which we faced in the past years and these challenges have been bordered on some external imbalances that came up and Zambia’s case was actually worsened by the drought that caused a bit of difficulties in terms of food and that’s why you see all those dips about Zambia because they were further exaggerated by a number of vulnerabilities. So in terms of boosting the economic buffers, government has come up with the economic stablisation and growth programme which is the basis upon which we have also been engaging with the IMF and other cooperating partners. So that is one of government’s fiscal consolidation measures,” said Chikuba.
“Then what government has done is that we have done the consolidation process around agriculture and FISP in particular and I am glad to note also that under fuel there are no longer arrears that are building up. Apart from these pronouncements, government has now decided that fiscal consolidation should be embedded in law. So we have embarked on a number of legal reforms and just today, Cabinet is looking at a number of them and some of the regulations that we are looking at to be revised is the loans and guarantees Act to bring in Parliament in terms of contraction of loans and we are hoping that this could be passed before Parliament closes. We also have a planning and budgeting bill where it will be mandatory to do appraisal of projects before they are rolled out into the budget.”
Meanwhile, a research fellow from ZIPAR, Shebo Nalishebo, observed that the country’s wage bill still remained high.
“We have seen that the wage bill is in check now but it still remains quite high. At the moment, the wage bill increased from about 38 per cent of domestic revenues in 2014…and it went up to 52 per cent but it is been going down a little bit and now it is around 48 per cent. And so you really wonder what the problem is or the main sources of pressure is in public finances. Internationally or within the COMESA region, it is advised that we need to keep our wage bill around 35 per cent of the domestic revenues. So are still quite a long way in doing this,” said Nalishebo.