And CTPD has advised government to come to terms with the fact that Zambia cannot borrow excessively without unleashing dire consequences on its economy just like any other developing country in the world.
In a statement dubbed “cutting your coat according to your cloth”, Monday, CTPD researcher Bright Chizonde noted that failure to implement fiscal restraints on debt accumulation had compromised debt management in Zambia.
“It is necessary for everyone to make a proper plan before any investment undertaking. A person who spends more than his/her earnings may soon fall into trouble. The Center for Trade Policy and Development continues to note the rapid accumulation of debt and consequent negative effects on Zambia’s economy. Poor debt management, limited transparency in reporting debt statistics, political economy overrides, legal shortcomings, and fiscal indiscipline continue to undermine Zambia’s economic performance. Zambia’s economic growth has slowed down; foreign reserves have been rapidly depleting while interest rates remain high-limiting the growth of the private sector. Even in the wake of increased taxation, the government’s liquidity position has not improved due to failure to limit excessive fiscal spending. The need to ‘cut your coat according to your cloth’ is much needed advice for the current situation,” Chizonde stated.
And Chizonde said government must to come to terms with the fact that Zambia, like many other developing country, could not borrow excessively without unleashing dire consequences on its economy.
“According to government’s official statistics, as at end of March 2019, the stock of external debt stood at $10.18 billion with Domestic debt at K58.21 billion. Moodys (2019) estimates that Zambia’s debt will exceed 75 percent of gross domestic product in 2019, from around 62 percent in 2017. The major concern is however not the stock but the growth rate of Zambia’s debt. In just one quarter, October to December 2018, Zambia’s gross debt increased by about US$1 billion, from US$16.5 billion at the end of September to US$17.5 billion at the end of December 2018. This rapid increase in public debt and debt servicing has resulted in reduced budget allocations toward education, health and social protection. Furthermore, Zambians have been subjected to a greater tax burden through increased domestic resource mobilization aimed at collecting more taxes to service debt. The Zambian government’s drive for rapid infrastructural development has been a classic case of a failure to “cut your coat according to your cloth”, as some experts’ assert,” Chizonde stated.
Chizonde also observed that government’s failure to implement fiscal restraints on debt accumulation had compromised debt management.
“Zambia’s debt management has a dual problem; firstly, there exist poor policy coordination among the various government policy documents such as the Medium Term Debt Strategy and the National Budgets, which has affected effective implementation. Secondly, Zambia’s debt management strategy suffers from political overrides. Experts believe that decisions to accumulate more debt have been influenced by the political economy, and thus are not made on the basis of economic benchmarks and macroeconomic stability but are subject to political objectives,” observed Chizonde.
“If the nation is to ‘Weather the Storm of Rising Public debt’, the politically empowered should learn that even governments have resource limitations and should therefore prioritize their spending on projects with the highest human, developmental and economic returns. Past austerity measures and the fiscal consolidation agenda have been ineffective due to escalated fiscal spending. CTPD urges government to move to cash budgeting and spend according to the domestic resources envelop. Zambia needs to limit spending to important growth enhancing projects, prioritize the construction of strategic capital infrastructure, and enter into Public Private Partnerships (PPPs) for the recouping of investments instead of rapidly contracting commercial loans.”