Government’s failure to achieve fiscal consolidation following the raft of austerity measures announced last year has negatively impacted Zambia’s economy, says former Economics Association of Zambia (EAZ) president Dr Chrispin Mphuka.
And Dr Mphuka urged government to clinch a credible programme with the International Monetary Fund (IMF) to help generate confidence in Zambia’s financial market.
The International Monetary Fund (IMF) last week stated that the Zambian government’s huge domestic arrears owed to contractors and suppliers had put pressure on households and businesses, and presented a risk for the country’s financial sector.
The Fund equally projected that Zambia’s growth would slow from 3.7 per cent in 2018 to 2.3 per cent this year, lower than earlier envisaged due to the impact of drought.
Commenting on the IMF’s end of mission statement, Dr Mphuka observed that government’s failure to achieve fiscal consolidation following the raft of austerity measures announced last year had negatively impacted on Zambia’s economy.
He, however, observed that government was capable of dealing with the debt problem if it took definitive steps.
“Last year, government promised that there will be austerity measures and the Minister of Finance mentioned those measures. But coming to the end of the year, very little was achieved! So, these are the things impacting negatively on the economy. I think government should still be in a position to find solutions to this. Those major interventions that government has been mentioning to lessen the impact of paying for debt servicing should be put in place,” Dr Mphuka told News Diggers! in an interview in Lusaka.
“Government is capable to deal with the (debt) problem if they can take definitive steps. I think what we have failed to do, is the fact that we are not doing what we are saying we want to do, that’s where the biggest problem is. For instance, the issue of fiscal consolidation, which started being mentioned a long time ago, we seem to have failed to achieve anything on that score. And the fact that external debts keep increasing and now the fiscal space is completely gone! I think it calls for drastic measures; drastic measures in the sense that government, now, should see that we are reaching a point where very serious measures must be done and we stick to those measures. What we have failed to achieve in the last two or three years, we are now obligated to achieve. We should try to achieve that.”
And Dr Mphuka, an UNZA economics lecturer, urged government to finally seal a credible programme with the IMF, which had so far remained illusive, to help generate confidence in the market.
“The other issue has been to say: let’s get the IMF, get a programme with the IMF because when we do that, it will help in generating confidence in the market. Because that’s what we are missing now, there is no confidence; there is no sense of credibility, so investors can’t bring their money because of those elements. That’s why we need fierce efforts by government to work out that, but it’s clear that nothing is coming up soon in that regard. And this will not be good in terms of impacting positively on our credit rating and whatever the private debt that we have,” he added.
Meanwhile, Dr Mphuka said the continued depletion of Zambia’s foreign reserves, which had fallen to around US $1.57 billion, a near 10-year low, left the country vulnerable because the kwacha could lose value at a fast rate.
“The real danger of depletion of reserves is that you can have a run on your currency. And when you have a run on your currency, your currency can lose value at a very fast rate! That’s why I saw some statement by the (Finance) Minister that ‘now we will leave the kwacha to be determined by market forces.’ It leaves the country vulnerable. What can bring hope is that we deal with the debt issue in a very definitive way and see whether there will be a debt rescheduling or refinancing and also see efforts to have a credible programme with the IMF,” said Dr Mphuka.
Despite Finance Minister Margaret Mwanakatwe’s austerity measures announced last year, government continued accumulating debt at a fast rate as expenditure on some infrastructure projects and government assets escalated.
The country’s external debt climbed to K10.05 billion as at December 31, 2018, compared to US $8.74 billion by the end of 2017, while domestic arrears owed to contractors and suppliers continued rising to unprecedented levels of K15.1 billion by the end of last year, up from K14.7 billion by the end of the third quarter of 2018.