The forthcoming International Monetary Fund (IMF) visit to Zambia does not imply that a Fund-backed programme will be actualized because the Zambian government still has to address pressing economic challenges, says ZIPAR.
And the Zambia Institute for Policy Analysis and Research (ZIPAR) has commended the Ministry of Finance for executing the 2019 national budget in a transparent manner.
Earlier this month, Finance Minister Margaret Mwanakatwe directed officials in the Ministry of Finance to clean up all the required data sets ahead of further IMF consultations this quarter.
Mwanakatwe directed Ministry of Finance officials to prepare for the pending Article 4 consultations with the Fund, who are expected to return to Zambia for further talks on the country’s much-needed economic bailout package anticipated to be around US $1.3 billion to help shore-up Zambia’s balance of payments support.
But in a statement, ZIPAR researcher Caesar Cheelo cautioned the Ministry that the forthcoming IMF consultations in Zambia were merely protocol and far from an indication that a Fund-backed programme will eventually be actualised.
“A few things are worth clarifying regarding engagements with the IMF. For starters, the forthcoming Article IV Consultations are a routine monitoring function of the IMF. They will focus on discussing recent economic developments and prospects for Zambia. This does not imply an actual negotiation towards an IMF-supported programme. The most that the Zambian authorities can do is to propose milestones and a timetable for the negotiations as a way to re-introduce the negotiation motion. This will entail addressing the IMF’s concerns, which caused it to walk away from the negotiating table back in August, 2017. Back then, the authorities unveiled ambitious borrowing plans when they should have been planning fiscal policy restraint. The IMF, then, believed that the borrowing plans threatened Zambia’s debt sustainability. Now, the authorities have less than three months to clean up their act and get ready to reactivate the negotiations,” Cheelo stated.
“Once the engagement resumes in earnest, the negotiations are likely to be quite challenging. The fact that Zambia has delayed its inevitable fiscal adjustment means that the adjustments, once applied, will be that much more painful to sustain. Non-statutory budget items, such as infrastructure projects, which have hereto enjoyed protected public spending, may come to a crashing halt! Staying the course of the negotiations will take stamina.”
He said while successful negotiations with the IMF would result in an economic breakthrough for Zambia, failed negotiations with the Fund would further weaken Zambia’s already battered international credibility.
“…Conversely, a failed negotiation will further erode Zambia’s already weakened international credibility and economic reputation. This will imply a deterioration of the country’s prospects to securing favourable terms and conditions under any debt refinancing negotiations. Securing IMF support in 2019 could be a make or break affair for Zambia,” Cheelo added.
He explained that Zambia’s public debt, which had ballooned relative to GDP in recent years, remained one of the country’s most pressing problems.
“Firstly, Zambia’s public debt has grown tremendously, increasing from 18.9 per cent of GDP in 2010 to 53.9 per cent in June, 2018, according to the Ministry of Finance. The mounting debt is underpinned by a persistent weakening of the overall fiscal balance, with a deepening deficit from 2.4 per cent of GDP in 2010 to about 7.4 per cent in 2018. The IMF projects that this will deepen further to 10.6 per cent by the time the first Eurobond falls due in 2022,” he stated.
“The most significant underlying problem of the large debt overhang is that it now imposes a heavy debt service burden. In December, 2018, the Ministry of Finance released a total of K4.3 billion under that year’s budget. Of this, a staggering K1.5 billion (or 35 per cent) went to external and domestic debt service, dwarfing the K1.1 billion (26 per cent) released to various government programmes, projects and public service delivery in that month. The debt service amount was even greater than the K1.3 billion (30 per cent) released for the wage bill. With the debt service burden dominating the fiscal profile, the deceleration of public debt accumulation and the dismantling of arrears, which the ministerial statement has emphasized, will be imperative for reducing the stresses from the overhang.”
And Cheelo commended the Ministry of Finance for executing the 2019 national budget in a transparent manner.
“We laud the Minister (Mwanakatwe) for putting her directives to the Ministry on record in the public domain. This gives the general public the opportunity to scrutinize the Ministry’s progress in implementing the (2019) budget, encouraging important transparency and accountability tenets. Inter alia, the statement calls for professionalism, integrity, innovation, and diligence in budget execution. If followed through, these elements will be decisive for restoring fiscal discipline and fostering overall budget credibility,” observed Cheelo.
“However, Zambia is likely to face strong headwinds and choppy waters in 2019. The fiscal authorities will, therefore, need to up their game in order to navigate the economy through the imminent challenges. Among the many potential threats in 2019, we believe two are particularly crucial in the context of the ministerial statement, namely: the pressures of a mounting debt overhang; and the credibility risk of another failed attempt to woo the IMF.”