By Jeff Kapembwa
Lusaka - Debate has ensued among players as to whether Zambia should seek a US$1.3 billion financial bailout when the International Monetary Fund undertakes a consultative meeting this November amid escalating debt and economic meltdown.
A recent analysis of Zambia’s debt by the international lender pointed to the fact that the Southern African country, riddled with debt and other economic factors, including a ballooned budget deficit in excess of 5%, should desist from contracting new non-concessional debt.
It argued, the significant buildup in domestic expenditure arrears is weighing heavily on households and businesses and presents a risk for the financial sector, it added in a statement at the end of the 2019 Article IV visit.
To reduce risks, the Zambian government needed to put up a large up-front and sustained fiscal effort. 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.
But the increased demand for infrastructure development and economic re-alignment after the 2020 US$8 billion budget has prompted calls for an IMF bailout to increase fiscal space.
Finance Minister Bwalya Ngandu, who was in Washington during the International Monitory Fund (IMF) and World Bank Annual meetings, said it was imperative for a bailout package to consolidate Zambia’s desire to execute the budget.
To augment his thoughts, the finance minister told lawmakers last month that Zambia was re-engaging the IMF for a possible bailout package. He confirmed the IMF agreeing to bring back its former resident representative Alfredo Baldini to Zambia to help in the process of engagement. Baldini was recalled at the end of August last year after protracted negotiations over a failed bailout.
However, debate has ensued as to whether Zambia needs the IMF to sustain its economy or pursue its own course of economic programmes amid mounting debts that have escalated.
During the just ended IMF/World Bank meetings, the IMF agreed to come to Zambia next month to exchange views on policies government is undertaking to stabilise the country’s economy, Chileshe Kandeta, finance ministry spokesperson said.
At the Washington meeting, Ng’andu met various players, chiefly the IMF director for the African Region, Abebe Sellassie, deputy director Africa region, David Robinson, mission chief, Dan Gura, and other senior IMF officials.
At a bilateral meeting Ng’andu, accompanied by Secretary to the Treasury, Fredson Yamba, deputy Secretary to Cabinet, Christopher Mvunga and Bank of Zambia (BoZ) governor Denny Kalyalya, met the United States of America Treasury Secretary who expressed readiness to support Zambia secure IMF bailout.
US deputy assistant secretary for Africa, Middle East and multilateral development banks, Eric Meyer, contended that Zambia needed to be on an IMF-supported programme to assist stabilising the economy.
“Our view is that Zambia should be on a programme (IMF supported). We wish you the best in your efforts to stabilise your economy and look forward to improved mutual trust in your relationship with the Fund,” Meyer was quoted as saying.
Meyer commended Zambia for the bold decision to maintain the VAT tax system, which decision, according to their observation, helped to remove uncertainty in the business community in Zambia and among the country’s development partners across the globe.
Meyer commended Ng’andu for re-affirming the Zambian government’s commitment to addressing the debt situation and also for the measures taken to dismantle domestic arrears.
Ng’andu had reiterated Zambia’s recognition of the IMF role in assisting countries to effectively manage their macroeconomic environment and stabilise their economy.
Ng’andu assured Meyer and other officials of Zambia’s unwavering efforts to ensure the current efficiency challenges in domestic resource mobilization related to tax evasion, smuggling and other tax avoidance practices, were overcome to mobilize resources locally and meet obligations.
But economic players, including the Economic Association of Zambia, argue differently. Association leader Lubinda Haabazoka urged Zambia not to borrow and instead find internal solutions to its debt challenges.
He claims getting an IMF bailout package meant acquiring more liabilities. Government must find resources and kick-start the Gross Domestic Product (GDP) rebasing exercise before the end of the year.
Dr Haabazoka argued Zambia should be the last country to ask for credit from the IMF.
“If we are aware that our debt currently stands at US$10.8 billion, that’s foreign debt, is very high, we should be the last persons to seek for help in terms of more credit from IMF because IMF money is also debt.
“So my view is for us to look at internal solutions and those do not include increasing taxes, they include looking for leakages trying to seal them so that we can enhance the resource base,” he contended.
Economic commentator, Chibamba Kanyama, who has always advocated for the return of the IMF representative, urged Zambia to carefully appreciate the role of the IMF and ensure an amicable solution to the country’s financial quagmire was resolved.
At a time many investors doubted Zambia’s economic credentials, it was imperative for the country to show proof why it deserved to strike financial deals with IMF and other partners, including the concessional US$1.3 billion.
“A lot is expected from technocrats who should be prepared sufficiently with data-backed narrative that will prove to various international stakeholders that Zambia is this time more than serious to engage the IMF.
“A number of economic watchers for Zambia, particularly investors in our souvereign bond, want assurance that the stabilisation trajectory Zambia has been preaching lately will be more that rhetoric,” he said.
Zambia Institute for Policy Analysis and Research (ZIPAR) endorsed government’s desire to borrow up to US$1.3 billion from the IMF on an interest free-basis to sustain its economic recovery programme (ERP), according to its executive director Pamela Nakamba-Kabaso.
She justified that without a home-grown fiscal recovery plan supported by an IMF loan, there will be adverse consequences for the local people and economy.
The IMF financial package is necessary as opposed to borrowing on the domestic market which would choke the private sector, as they will fail to expand their businesses due to lack of finances.
“The private sector is not accessing enough credit. So, if, government continues to borrow on the domestic market, they will crowd out the already constrained private sector and this will be bad for growth,” she said.
ZIPAR macroeconomics unit senior researcher, Caesar Cheelo, said there was no better alternative to an IMF loan to support the economic recovery programme. The Centre for Trade and Policy Development-CTPD, another think tank, argued that Zambia could secure the IMF bailout by practically implementing fiscal discipline.
“There have been several rounds of discussion and negotiations over the IMF bailout package which have since stalled since 12th July 2018, what has been lacking is government’s commitment on the fiscal-side on reducing government expenditure, increasing government expenditure on infrastructural projects such as roads and airports is simply not in tandem with fiscal consolidation, austerity and reducing the accumulation of public debt,” Isaac Mwaipopo, the CTPD executive director, said.
CTPD notes that a number of citizens have expressed skepticism on government’s intentions to get a bailout from the IMF following experiences of the 1990s.