Economist Chibamba Kanyama says government must arrest the rapid public debt growth or it will continue putting more pressure on the country’s dwindling foreign reserves and trigger economic instability.
Commenting on Zambia’s gross international reserves, which have fallen below US$1.6 billion for the first time in nearly 10 years, Kanyama warned that there was need for government to arrest the country’s rapid debt growth this year as it could trigger economic instability.
He noted that the central bank was aware of the consequences of low international reserves, but that government’s continued borrowing meant that the country’s reserves would continue declining and place the economy in jeopardy.
Zambia’s gross international reserves by the end of the fourth quarter of last year plummeted to US $1.57 billion, the lowest in the last nine years, from a high of around US $3.1 billion in 2014.
“Zambia’s foreign reserves is an item policymakers gloss over because they think it’s a small matter that can easily be resolved. However, the status of foreign reserves is what triggers uncertainty among those we owe money and all others who participate in an economy. The Bank of Zambia seems to fully understand the consequences of low international reserves and that was clear in its well measured statement yesterday (Wednesday). The (BoZ) governor (Dr Denny Kalyalya) said a lot in few words and would be important to unpack the full impact of that statement so that we all understand what it means with regards to; i), the economy; ii), prospects for economic stability now and in near future; iii), the impact of the steps being considered to mitigate the negative impact (i.e. debt swap with China) and iv), the readiness of government to fully comply to the prospective strategies (i.e. reduction in the acquisition of external debts given that debt servicing largely accounts for the reduction of foreign currency holdings e.g. from US $1.63 billion to US $1.57 billion (in three months?),” stated Kanyama in a Facebook posting, Thursday.
“Just to help with context, in 2014, reserves were at US $3.1 billion. In short, with the projection that what we will pay in servicing debt as a percent of domestic revenue may increase to 42 per cent of what we collect in taxes this year. We need to fully arrest any further growth in debt. If we do not do this, pressure on foreign reserves will be higher and trigger economic instability. The comfort is that the BoZ is not pretending there is no problem; and once you admit there is a problem, you will win support towards a solution.”
Government’s spending on serving external debt has drastically leaped to nearly K15 billion in this year’s budget, more than double the amount of K7.26 billion allocated in the 2018 budget.
Just last month alone, government splashed K2.5 billion in debt servicing repayments out of a total of K5.7 billion that was released by the Ministry of Finance to fund various government operations, representing nearly 50 per cent of the total budgetary allocation.