CUTS commits IMF and Ministry of Finance on prudent debt management – Zambia: News Diggers!
On Thursday July 16, 2020, CUTS brought together different stakeholders from various sectors including civil society, government, private sector, academia and media to discuss solutions to Zambia’s debt situation. Public debt remains a major economic challenge for Zambia and, therefore, there is a need to maintain dialogue on potential solutions. The meeting which took the form of a webinar attracted over 100 participants from Zambia and beyond to discuss our debt situation. CUTS is concerned about the impact of debt on consumers, including rising inflation, declining investment in utilities used by low-income consumers, crowding out effect on the private sector which affects consumption and all of this generally has an impact on economic growth and efforts to reduce poverty in the country.
The meeting brought together a panel of experts from civil society organizations and the private sector to share how debt affects these sectors. Mr. Isaac Mwaipopo, Center for Trade Policy and Development, Executive Director, said the increase in borrowing stemmed from the need for the government to invest in infrastructure development, however, the lack of a system efficient procurement was one of the reasons Zambia found itself suffering from unsustainable debt. He added that the outbreak of the Covid-19 pandemic has now worsened Zambia’s debt situation, thus also limiting the country’s ability to respond to the disease.
In seeking to find solutions, he encouraged the government to continue to engage the International Monetary Fund. He noted that it was necessary to ensure parliamentary oversight over the debt contraction to improve transparency and that it was also important for the government to cut back on infrastructure projects and focus only on those with high debt. economic return. He concluded by welcoming the decision of the Ministry of Finance to redefine the priorities of investment projects and to dismantle domestic debt in order to improve the liquidity of the local economy.
The views of the private sector were shared by Ms Florence Muleya, Zambia Manufacturers Association, Managing Director. She noted that as the government increased its domestic debt, there was less money available for the private sector to borrow and that was getting worse over the years. Ms Muleya noted that the stimulus package made available by the government through commercial banks was unlikely to achieve the expected results, as commercial banks would likely charge higher interest rates than if the money had been made available through the Development Bank of Zambia.
CUTS Lusaka has also engaged the International Monetary Fund to understand how the fund can help Zambia’s high risk of debt distress. Dhaneswar Ghura, International Monetary Fund, chief of mission, said solutions to public debt should be discussed in a larger context, including the Covid-19 pandemic which has triggered a global economic crisis. In addition, trade disruptions had affected key sectors such as mining and tourism had come to a standstill in all tourism-based economies, including Zambia. Thus, estimates show that the economy will contract by 5% this year. In addition, the drought the country has experienced has had a major impact on agriculture and slowing growth and this year was expected to be worse. Food security would therefore be an issue and the pandemic would exacerbate the achievement of Zambia’s long-term development goals, such as eradicating poverty, malnutrition and ensuring food security.
Mr Ghura noted that there is a need to increase public spending on health and expand social safety nets, especially because Zambia has a strong social safety net system. He encouraged the government to supplement its tax relief measures by dismantling part of its debt to continue supporting the private sector. He finally mentioned that the government had invested in infrastructure but that most of the loans had been granted on non-concessional terms which are expensive. Fiscal policy would therefore not be sufficient to deal with the debt situation, which is why the government hired debt advisers to help with a debt restructuring plan. He noted that the key objectives should be: to boost growth, generate jobs and reduce poverty and that the IMF plans to help the government achieve this.
Finally, CUTS engaged Mukuli Chikuba, Ministry of Finance, Permanent Secretary, who indicated that the relationship between civil society and government is important. He gave some key steps the finance ministry is taking to reduce debt. Mr. Chikuba noted that in the short and medium term, it was necessary to ensure a balanced budget to allow further rationalization of spending (fiscal consolidation). In the medium and long term, he indicated that there were efforts to reorient public spending and redefine the priorities of public spending. He also noted that social sector spending would be the government’s long-term priority. He further indicated that creating space for the private sector is a government goal and will therefore reduce borrowing, lower rates and lengthen maturities.
The multi-stakeholder meeting provided the opportunity to show the road map for addressing Zambia’s high debt in the short, long and medium term. CUTS Lusaka will continue to mobilize key stakeholders on the need to reduce Zambia’s debt. It is clear that there is political will to do so and also support from the international community. Bold steps are needed to implement the government’s plans to reduce debt and sustain economic growth, especially during the Covid 19 era.
For more information, please contact the center coordinator, Consumer Unity and Trust Society, House No. 406, Kudu Road, Kabulonga ([email protected])