Zambia at the brink of bankruptcy – Musokotwane

The country is at the brink of bankruptcy due to excessive debt, says Former Minister of Finance Situmbeko Musokotwane.

And Dr Musokotwane says if Zambia proceeds with costly projects like the Lusaka-Ndola Dual Carriageway, the country may default on debt servicing or forego future developmental programs.

Meanwhile, Dr Musokotwane says only citizens, not donors, can stop the country from sliding into a devastating debt crisis.

In his Near Year message shared on his blog Tuesday, Dr Msokotwane, who is also Liuwa UPND member of parliament, observed that the PF could not be trusted to correct the situation as they had an insatiable appetite for borrowing.

“The start of a new year presents an opportunity to reflect over what has happened during the previous year and determine the way forward. For Zambia, that determination has become an imperative. Zambians must act together and take steps to pressurise the government against getting the country into bankrupcy. The country is on the brink of being bankrupt due to excessive debt. It is also hard to see how this can be corrected under the current government which is responsible for bringing about the unfortunate situation and has endless appetite for borrowing. Year in year out, the PF government was warned by different organizations like opposition parties, international organizations and local economists that it was borrowing excessively,” Dr Msokotwane stated.

He observed that there had been an unprecedented growth in debt under the PF leadership.

“The PF have consistently rejected advice against excessive borrowing but now, the public debt has become a problem. Debt has become the single most important economic issue to be resolved short of which no sensible socio-economic progress in Zambia will materialize. Of course the government is underplaying its seriousness because it is embarrasing for them, having pretended all along that everything was under control. Zambia’s s new debt crisis must be forced to the fore of any development discussion. It must not be masked. The extent of Zambia’s debt is not certain as we explain later below. Zambia’s total external debt at the end of 2011 was US$1.9 billion. Domestic debt on the other hand was about US$2.5 billion when converted into the US dollars. This brought the total public debt of the country to about US$4.5 billion. Fast forward to October 2017. At the time the Minister of Finance presented the 2018 Budget, he stated that Zambia’s external debt as at mid year was US$7.6 billion. Domestic debt, when converted into US dollars was more than US$4 billion, bringing the total public debt to about US$12 billion. The level of total public debt has therefore grown by nearly three fold over the six years of PF rule. Of the total public debt, the external component has grown fastest at four fold from US1.9 to US$7.6 billion. This is unprecedented growth in debt,” he stated.

“Many analysts have disputed the level of Zambia’s indebtedness as reported by the government. The debt level is in actual fact higher. We shall return to this point later. For now, it is important to know that even at the currently (lower) level of reported debt, the country is already facing debt distress, as the IMF and the World Bank have recently stated in their analysis of the situation. The technical indicators for debt sustainability have been breached. But here is another simpler non technical proof that debt distress has already set in.
Today there are many projects all over the country which are failing to be completed. Public workers’ salaries in essence have been stuck for years with the recent so called increments being too little and have left salaries actually reduced in real terms. Today the government struggles to release Constituency Development Fund which is essential for funding community development projects. All these and other failures in development are happening to a large extent because of debt distress.”

Dr Msokotwane noted that this year, 80 per cent of the revenue collected would be spent on salaries and debt servicing while only 22 per cent would be available for development programs.

“In the 2018 national budget, about 50 percent of all revenue collected will go for salaries in the public sector. Twenty eight percent will go for debt servicing; much more than what the government plans to spend, say on education. This means that nearly 80 percent of all collected revenue is swallowed up by public salaries and debt servicing. Only 22 percent is available to be shared for ‘development’ programs, other government operational costs and travel. This is clearly too little. In short, debt service is a big contributor to the of diversion of money from genuine development programs, resulting in projects stalling. Returning to an earlier point, Zambia’s debt must be more than or will soon be more than what the government has disclosed. The disclosed total debt does not include amounts for many projects like Lusaka – Ndola Dual Carriageway (US$1.6 billion); Kafue Lower Power Station (US$2 billion); Serenje Petauke Chipata Railway US$2.2 billion), the Mass Communication Tower projects (US$280 million); purchase of aeroplanes for the soon to be revived Zambia Airways and many other projects which the government publicly launched and will be financed by debt,” he said.

And Dr Musokotwane stated that if Zambia proceeded with costly projects like the Lusaka-Ndola Dual Carriageway, the country may default on debt servicing or forego future developmental programs.

“When the level of public debt is re- calculated to include all the projects uptaken and those for which the government has made firm commitments to undertake, then total public debt may be around US$17 to $20 billion. Using well established indicators known to economists for assessing debt sustainability of a country, Zambia’s debt is dangerously excessive. In particular, if the government proceeds with some of its planned high cost projects like Ndola Lusaka Dual Carriageway, Serenje Chipata Railway, etc. then Zambia will either default on her loans or, if she choses to service them, she will have to forego future development programs for many years. It will be impossible to do both. The government should not even count on rising copper revenue to resolve the problem as long as it remains reckless. Just ask Venezuela, a country with more natural resources revenue than Zambia that acted carelessly also. If the reported government debt at $12 billion is already a problem to service what more of higher debt say $18 billion?
What ought to be done about this tragedy?”

He stated that although Minister of Finance Felix Mutati would introduce a bill to stop excessive borrowing, it was not a solution.

“The Minister of Finance says he will introduce a bill in Parliament to stop excessive borrowing. Unfortunately this is not a matter for creating new Laws. It is rather a matter for the government to convince itself that it must act in a responsible manner. For that you don’t require a new Law,” Dr Msokotwane stated.

“To butress the point, it is worth recalling that during the first term of the PF in government, they twice on different occasions passed amendments in Parliaments to allow them to increase the amount of debt they could incur because they considered the existing provision then to be too restrictive. So, how can the same government rely on new Laws to tie their hands against borrowing when they untied the same Laws just a few years back. This does not make sense.
What about the citizens? What should be done? It is just over decade ago when the international community forgave our debt. Do we want to sit and watch while the government takes us back into the mud? Are people going to sit back and wait for the situation to lapse into the catastrophes we saw in Zambia yester year and what we saw in some countries in Africa? In some ways the debt analysis that has come from international organisations[1] may be interpreted to mean: ‘We have given you the data and the analysis. For the rest, let the citizens and their government take the corrective actions’. If we fail, we should not plead ignorance.”

Meanwhile, Dr Msokotwane said only Zambian citizens could stop the country from sliding into a debt crisis.

“Taking into account the foregoing, the key message for 2018 is this: We the citizens must take it upon ourselves to stop our country from sliding further into a devastating debt crisis. It will not be the donors to do it for us. It will not be the IMF or the World Bank. And certainly not our government that still wants to borrow more huge amounts, which has led the IMF to walk away from us. A starting point may be the revival of the old Jubilee Coalition in Zambia. It comprised local NGOs and some churches to lobby for Zambia’s external debt to be written off, which finally happened. The institutions that were lobbied were creditor foreign governments, international lending institutions and others. Under the current scenario, the coalition must first and foremost pressurize our own government to stop reckless borrowing. It is pointless to allow them to sink the country and only thereafter run around for help from the international community. The starting point should be to solve the problem from here at home. Members of Parliament, not only from my UPND as the government in waiting, but even from other parties including PF who feel for the country must remain vigilant and speak out against tendencies to push the country further deep into indebtedness. And, of course, political parties must be ready to strongly collerborate with other progressive forces and NGOs to pressurise government to behave in a more responsible manner,” stated Dr Msokotwane.

         

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