By HAKAINDE HICHILEMA
While
on the campaign trail in Mpulungu recently, President Edgar Lungu said that he
had no problem with borrowing money to bring development to the people both in
rural and urban areas of Zambia. What President Lungu has failed to understand
is that if Government manages the economy properly then Zambia does not need to
borrow vast sums of money and make large interest payments yearly in order to
fund such projects. Furthermore, the current administration has failed to
appreciate that if they continue borrowing at the current rate they risk
sending the country into a state of economic turmoil.
Unlike
sensible governments that prioritise domestic resource mobilisation, the PF has
been on a borrowing spree since coming to power in 2011. In 3 years the PF has
accumulated the same level of debt that was collected in the previous 27 years.
On a recent visit to Zambia the IMF indicated their concern that the Government
is unable to generate enough revenue to meet its regular development
expenditure. Yet the President has clearly signaled that they will continue
their trend. The recent revelations that Government wishes to issue another
bond to finance the current debt is grossly worrying, particularly given the
limited transparency with which such funds are then spent.
Any
government that meets its expenditure by excessively relying on borrowing is
guilty of economic mismanagement, and the PF is no exception.
What the PF Government
has been telling us:
· Increased
borrowing will raise financing for development;
· At 32 percent
of GDP (US$ 7.9 billion), Zambia’s public debt remains sustainable.
What they are NOT telling
us:
· Government has resorted to excessive borrowing
due to fiscal indiscipline. The high level of corruption and lack of
transparency in the procurement of road projects and other unplanned
infrastructure projects has bloated Government’s expenditure. The failure to broaden
the tax base, the under-collection of corporate income taxes, especially from
the mines, and the underperformance of domestic VAT have all resulted in lower
revenues. Therefore, Government continues to spend more money than it can
generate, leading to a high fiscal deficit. The fiscal deficit which was just
1.8 percent of GDP in 2011 peaked at 6.7
percent of GDP by 2013, and 5.2 percent in 2014. To finance the deficit,
Government has resorted to heavy borrowing.
· The high fiscal deficit, coupled with the PF’s continued
insatiable appetite for borrowing, will soon make public debt unsustainable. Total public debt is currently at 32
percent of GDP. In other words Zambia owes, in real terms, US$ 7.9 billion in
both external and domestic debt. It therefore goes without saying that should
Zambia issue another international bond of, say, US$ 1 billion, we would have
reached the unsustainable debt threshold of US$8 billion at the current GDP
levels. We must remember that the level of debt the PF has built up over three
years is equal to that previously accumulated over 27 years and had to be
written off.
The implications of more
borrowing:
· Debt servicing costs are rapidly increasing and
are crowding out pro-poor spending. The high interest debt
burden absorbs a significant amount of government revenues. To illustrate this
point, interest payments on both domestic and external debt, which were just K1
billion in 2011, now stand at K5.3 billion in 2015. This is nearly as much as
the K5.6 billion Government intends to spend on road infrastructure in 2015 and
more than the K4.5 billion health sector spending.
· A Kwacha that is depreciating against the dollar
means more Kwacha is needed to pay off external debt. The recent
fluctuation of the Kwacha has made external debt service payments more expensive.
For example, at the time the budget was being prepared, the dollar was trading
at K6.1 to the dollar and now it is K7.1 to the dollar. A debt of US$100,000
will now need payment of K710,000 and not K610,000; this means a loss of K100,000
within 6 months diverted from development needs.
· Government has been crowding out the private
sector despite saying it is the engine of growth. Due to heavy borrowing
on the domestic market, Government has been using up domestic private savings
that would otherwise have been available for private sector lending. Most of the
local firms which are SMEs have no access to international financing have been
refused loans by local banks because of the PF Government’s insatiable appetite
for borrowing without regard for the private sector. The smaller remaining pool
of loanable funds in the market has raised the cost of capital for private
borrowers (high interest rates), thereby reducing investment demand, and hence
affecting growth and welfare. If you are wondering why economic growth has been
on the decline since the PF came into power then this is part of the reason.
UPND Stance
· The UPND will
grow the economy by addressing the bottlenecks faced by the private sector
which accounts for over 90 percent of employment and is the only way to create
the amount of new jobs Zambia needs. We will look at reducing the cost of doing
business (including interest rates) and improving access to investment capital.
· The UPND will
prioritise domestic resource mobilisation by increasing the efficiency and effectiveness
of the Zambia Revenue Authority and other revenue collection agencies, as well
as curbing the high capital flight, tax evasion and tax avoidance.
· While
Government continues to sing the song that the national debt is sustainable,
they are not telling us how we will pay back the owed money. UPND will put in
place a robust long-term debt management strategy that will ensure that new
borrowings follow legal and fiscal responsibility guidelines, as opposed to the
current haphazard borrowing.
· The UPND will
use existing information and commission further research to estimate the cost
of depreciation of existing capital stock to come up with optimal budget
allocations in order to prioritise Operations and Maintenance of existing
high-return infrastructure projects.
· The UPND will
mitigate political expedience and corruption in infrastructure projects by, among
other measures, reverting the Road Development Agency to the Ministry of
Transport, Works, Supply and Communications and ensuring transparency and
planning of projects in accordance with Government vision.
· Lastly, there
are many options for infrastructure development that can be considered and
would reduce the cost to Government, for example the Build Operate and Transfer
(BOT) model that was used on the Kenneth Kaunda International Airport (KKIA)
but later cancelled by the PF. The PF preferred to build the airport at the
cost of over US$300 million as opposed to a BOT arrangement of US$100 million.
Together We
Can
