FORMER finance minister Dr Situmbeko Musokotwane says Zambia currently has no capacity to repay the three Eurobonds worth US $3 billion, hence government’s request for a six-month suspension on interest payments.
And Musokotwane says Zambia’s economic recovery will not succeed as long as foreign commercial debt remains unpaid.
Speaking when he featured on “Let the People Talk” on Radio Phoenix, Tuesday, Musokotwane said Zambia lacked the financial capacity to repay all the Eurobonds.
“The first one of those Eurobonds matures in 2022, but we still pay interest on them. On top of that, there are other loans other than the Eurobonds. We owe some foreign commercial banks money, we owe Exim Bank of China, we owe so many entities money. The impact is there. Clearly, there is no capacity to pay those. Already, now, we are failing to pay the interest, hence that letter that our Minister of Finance wrote to say, ‘can you give us space of six months so that between October and March, next year, we don’t pay anything, because there is no money to pay. I don’t see the capacity to pay back, even after that requested time. Neither do my colleagues in government see that capacity. Now, it is an issue of seeing what can be done. This debt problem is crushing everybody! Now, we are not able to fund schools, hospitals, we are not able to hire teachers. There are 40,000 qualified teachers out there waiting to be hired, but there is no money to hire them. And the spaces are there. There are so many schools without teachers,” Musokotwane said.
He said the 2021 budget equally failed to address the country’s main economic problems.
“My colleagues in government want to project that the main problem to this economy is COVID-19, but we are saying no. It is not. That is only part of the problem. But the core thrust of the problems is on the debt issue. We have a problem of the exchange rate going wild; we have a problem of the mining sector, we have so many businesses that have been bankrupted by the government because government collected goods and services and it is unable to pay. Unfortunately, the budget for 2021 does not address these issues. One would have expected that this budget was going to address the problem of borrowing, how we can restructure the debt or how we can rearrange it so that we give relief to our people,” Musokotwane said.
Musokotwane, the UPND chairman for finance and economic affairs, said that as long as foreign exchange was used to service the Eurobond repayment, Zambia’s economic crisis would persist.
“As long as we continue on this path where forex comes in and it goes out to pay Eurobonds to China, India etc, the problems will continue. So, the debt issue must be tackled as a prerequisite for what the President (Edgar Lungu) and the (Finance) Minister (Dr Bwalya Ng’andu) talked about for the economic recovery plan. The economic recovery will not succeed as long as this issue of debt is on our books. And the level of borrowing is so high. About 43 per cent of this budget is borrowed money. So, the 2021 budget proposes the opposite of what we are expecting,” he added.
Musokotwane further said servicing the debt had become a massive drain on the international gross reserves.
“The kwacha now is K20 to a dollar. Why is it moving like this? It is not because of COVID-19. COVID has just contributed a smaller section of this. The major driver of this is the servicing of the debt. This year, the amount of money we are supposed to be paying outside to the people we owe is US $1.5 billion. And our reserves had about US $1.5 billion. So, the amount of money we have been paying to service this debt has become too huge! So, money comes in, but it immediately goes out to go and service the debt. I think the statement by the Bank of Zambia a few days ago clearly stated that servicing of foreign debt is the biggest core on the national foreign exchange reserves. So, if we are paying so many dollars out, what happens to the exchange rate? It has to go up. But now the critical issue is that what does this exchange rate do to industries? So many people have lost jobs and companies are closing because they can’t operate at K20 to a dollar. So, the exchange rate is a direct consequence of the borrowing that took place,” he observed.
Meanwhile, Musokotwane, who is also Liuwa UPND member of parliament, said government’s failure to repay VAT refunds to the mining sector had denied the much-needed investment in the sector.
“We knew very well that when time came to pay back these loans, we would have to feel poorer. This debt has also affected the very growth of the economy itself. As we pay the debt, the very growth or expansion of the economy has been negatively affected. Our mining industry is struggling today! The projections that we had way back about 2010-2011, by this time we should have been producing 2 million tonnes of copper, which is our main export commodity. But it is stuck! It is still about 700,000 to 800,000 tonnes. Why? Because as the government was borrowing and now paying back, they are desperate for cash! And where can we find that cash to pay back these loans? Arising from that, one of the measures they took was not to give VAT refunds to the mining sector. The mines paid VAT like anybody else who is in production, but government now withheld that money from the mining sector. By withholding that money, the investment that was supposed to go into mining has not taken place. As a result, our main mining industry is not expanding and in many instances has shrunk. It has denied the most necessary capital needed for mines to operate their enterprises in the manner they should be operating,” said Musokotwane.