Speculation on Zambia’s debt will negatively impact economy – CSPR

Civil Society for Poverty Reduction executive director Patrick Nshindano says government must publish Zambia’s exact debt stock because the speculation from economic commentators is extremely harmful to the economy.

Speaking at a press briefing yesterday, Nshindano noted that the current negative perception on Zambia’s debt stock could see markets and macroeconomic indicators start shifting in the negative and erode the positive gains the country had achieved.

“CSPR notes that Zambia’s economy is expected to grow above 4% in 2018. However, growth like in the past continues to exclude the majority of the poor and vulnerable in the country. Growth therefore must focus on addressing inequalities and redistribution of wealth to ensure proportional development and tangible growth to elevate the living standards of citizens in line with the 7NDP of accelerating economic growth without leaving anyone behind. The 7NDP provides an excellent opportunity to reduce poverty with a target of reducing it by 20% in the next five years. This will only be achieved with effective implementation and equitable investment to all parts of the country,” Nshindano said.

“Strongly related to economic performance is the debt stock which is currently at USD 8.7 Billion and has continued to be of concern to civil society. We have noted with concern the high level of debt speculation in the media and economic commentators which portray the country as retrogressing based on its recovery plan but also the medium-term debt management strategy with some indicating debt to GDP ratio of over 100%. We therefore urgently call on the Minister of Finance to provide an official update on the status of our current debt stock. Economic speculation is extremely harmful to the economy without the correct information and the current negative perception could see markets and macroeconomic indicators to start shifting in the negative eroding the positive gains the country has achieved for most parts of 2017 and 2018.”

He said it was important for government to prioritize debt management.

“It is therefore critical that the government prioritizes debt management which will include ensuring prudent public financial management particularly reduction of waste and leakages through corruption and tax avoidance to create the much-needed fiscal space and avoid further indebtedness. A lot of Zambians, especially the poor and vulnerable, sacrificed to attain debt cancellation and reduce the debt burden so as to accelerate economic and social development. The current situation has seen the erosion of the gains we made and increasingly reducing fiscal space for much needed economic and social investment with the 2018 public investment budget standing at less than 30%,” Nshindano said.

Nshindano warned that Zambia risked plunging into a serious economic crisis if the current debt was not well managed.

“Failure to manage our debt effectively would see the country plunge into economic stress and a further increase in the cost of leaving and the already high poverty and inequality levels as we begin to see resources shift from key social sector investment such as social protection, health, education etc, into debt repayments in addition to declining productivity and investment In this regard, the minister of finance should therefore indicate the progress that has been made so far in line with the debt management strategy and what government is doing to stick to the plan. further in addition to regular interaction with key stakeholders including the IMF to build the country’s outlook, she must ensure she provides quarterly updates as provided for in the debt strategy to avoid speculation but also promote transparency and accountability,” he said.

“In this vain, we urge both the executive and the legislature to accelerate PFM legal reforms which included the enactment of the planning and budgeting bill, loans and guarantees bill, and the public procurement bill as well as enactment of the of information act as all these have an impact on our debt sustainability which unfortunately have been dragging.”

And Nshindano advised against introduction of new taxes.

“With regards to promoting local investment, we note that interest rates remain high at 24.1% as at March 2018. This is a marginal improvement from 24.6% in December 2017 and requires attention to ensure that the cost of capital is affordable to citizens and corporates to energize the private sector and spur the creation of jobs which are sorely needed to cushion unemployment and grow the domestic economy especially SMEs. We further note that taxation continues to be a challenge, CSPR asserts that considering tax compliance is below 60% of eligible tax payers, it is preferable that government strengthens tax administration rather than the introduction of new taxes to fund the treasury. In addition, there is need to determine an effective tax rate for personal income to maintain protection for the poorest of citizens and ensure that citizens are not overburdened with statutory obligations and payments,” said Nshindano.

“Based on our analysis citizens have continued to take up the larger tax burden in comparison to corporates eroding savings and creating a continues barrier to both economic and social opportunities. CSPR calls for government to make more use of established and emerging economic simulation models to better determine the impact of taxes as well as government direct benefit programmes on citizens’ income levels and poverty.”

         

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