Economist Professor Oliver Saasa says Finance Minister Dr Bwalya Ng’andu must openly acknowledge that Zambia’s debt has now reached “unimaginable proportions” and outline how it will be dismantled in the 2020 national budget.

And Prof Saasa says there is need for the Ministry of Finance to study the cascading effects of Sales Tax and understand them before making the switch from Value Added Tax (VAT), considering the high likelihood of significant job losses.

In a statement to News Diggers! ahead of the 2020 national budget presentation this Friday, Prof Saasa stated that addressing Zambia’s domestic and external debt should be made top priority and urged Dr Ng’andu to openly acknowledge that the country’s debt stock levels had reached “unimaginable proportions”.

Zambia’s external debt stock has risen to an unprecedented US $10.23 billion by June 30, 2019, from US $10.18 billion as at March 31, 2019, while domestic debt equally jumped to K60.3 billion compared to K58.3 billion during the same corresponding period.

“I want to share some food for thought as the Ministry of Finance puts its final commas and dots to the 2020 national budget. Firstly, the debt challenge should not be downplayed and its management ought to be top among the considerations in the 2020 budget. Zambians will be listening very attentively regarding how government, through the Minister (Dr Ng’andu), wishes to handle what I now see as enemy number 1 for Zambia at the moment. The Mwanakatwe period represented a serious missed opportunity of calling the problem by its real name. She allowed the politicization of an issue that required level-headedness. As a country, we relapsed into a state of denial regarding the magnitude of the debt burden and the looming debt crisis that the IMF warned us about as early as late 2017. We refused to take heed even of the results of our own Debt Sustainability Analysis (DSA) that was commissioned by no other than the Ministry of Finance. Rather than allowing its results to serve as a ‘wake up call,’ the Ministry of Finance elected to hide it from the public domain albeit slowly giving some tacit acceptance that there could be a problem,” Prof Saasa stated.

“The seriousness of the debt challenge, today, in Zambia cannot and should not be allowed to be politicized by those that are less informed, not only of its magnitude, but also its crippling effects on the country’s welfare. It is not my expectation that Dr Ng’andu would tolerate the stifling of professional and intellectual discourse on an issue that is so critical to the country’s well-being. My advice to Dr Ng’andu is that he should not allow himself to be in a state of denial. If this brings some comfort to anyone, we need to remind ourselves that the debt challenge began a long time ago before the current government and to accept that there is a problem should not be seen as a bad verdict on the current leadership alone. It will be a victory of sorts if this government comes out openly to acknowledge that the problem has reached unimaginable proportions and that something out of the ordinary must be done about it.”

Prof Saasa, the Premier Consult Limited chief executive officer, said the fact that the country’s debt had gone past 80 per cent of GDP was sufficient ground for everybody with some elementary appreciation of this challenge to get concerned and finally do something about it.

“The President, in his State of the Nation Address to Parliament, expressed his concern regarding the fact that remuneration of government workers, combined with debt servicing, now account for 90.1 per cent of domestically-generated revenue. The President’s decision to single out this recognition should be sobering. Perhaps more depressing is the reality that a significant portion of debt servicing comes from foreign reserves and through the hiving-off from social sector spending in order to avoid relapsing into debt distress. This means that the debt challenge has resulted in a situation where we are now using money for hospitals/health and educational requisites to service the debt, a state of affairs that has very serious ramifications for the average Zambian’s Human Development Index, which speaks to the deterioration of social welfare. The redeeming of the crippling domestic debt should perhaps be priority number one in the 2020 budget considering the far-reaching adverse effects this is causing to the local economy,” he stated.

And Prof Saasa also noted that the Zambia Revenue Authority (ZRA) needed to build capacity to enable it mop up as much tax as possible, and to be helped in finding smarter ways to catch the informal sector in the broader tax net.

“I have heard of ZRA having met more than its targets in some months. What is needed now it to set targets to levels that correspond with the national requirements as expressed in the national budget and, to the extent possible, assist the government reduce the fiscal deficit through more resource mobilization. It is clearly ironic to hear of ZRA reporting having met its targets while, at the same time, the government fiscal deficit is worsening and many of government programmes going unfunded. While we may be in a panic mode towards raising more revenue, a word of caution: avoid killing the already-stressed industry by being careful about introducing tax measures that could cripple production and productivity in the medium to long-term. Short-term tax maximization effort should not be done at the expense of growing the economy that only comes about from the facilitation of a favourable investment climate that allow business to thrive,” he stated.

Prof Saasa further advised government to consult widely before finally switching from VAT to the proposed Sales Tax.

“The cascading effects of Sales Tax should be better studied and understood, especially considering the likelihood that business houses could be forced to cope with its challenges by bypassing producers and suppliers in the supply chain, a phenomenon that could result in significant job losses, especially on the Copperbelt and North-Western provinces where mining houses are likely to respond with alternative supply chains that will undercut local suppliers. That would result in significant job losses. In short, Dr Ng’andu, invest in comprehensive investigations on the merits, or otherwise, of a switch to Sales Tax. Of course, government abandoning of the Sales Tax experiment may signal instability in its policy stances. My question is: so what? Is it not better to discover your error in good time and change course than sticking to a mistake simply because you have invested a lot of time creating it? Where the economy is, currently, the government cannot afford costly experiments whose positive results are not assured,” he cautioned.

Prof Saasa also encouraged government to immediately shelve the US$1.2 billion dual carriageway from Lusaka to Ndola considering its cost magnitude and complexity as one way of saving much-needed funds for debt serving.

“My recommendation for the 2020 budget in the area of cutting down expenditure focuses on the need to significantly scale down on government-funded road construction works. This will release money for other equally deserving investments, including those in the energy sector where electricity deficit, for example, has began to cripple GDP growth targets. One project that we need to shelve immediately, considering its cost, magnitude and complexity is the US $1.2 billion dual carriageway from Lusaka to Ndola. This cost is too astronomical to add to the current sovereign debt stock. Because of its economic importance, however, this project should not be abandoned. Rather, it should be floated as the flagship for the country’s commitment to the PPP option that has received lip service thus far,” stated Prof Saasa.

“Under a financing option, known as Build-Operate-Transfer (BOT) Toll Model, a private sector player constructs the road and recovers the sunken cost by way of toll collection over a period of time, say, 30 years. The benefits from this PPP approach is that the government won’t be expected to meet any road construction costs (hence no need for a costly external loan) as the private developer will earn his investment returns from toll charges. Consequently, the fiscal burden of the government would remain limited and traffic risk will be assumed by the private developer. The private company that will be awarded the BOT arrangement will also maintain the road. Many governments elsewhere have made this model the most preferred option because of its insignificant effect on public finance. Considering the high traffic volume between Lusaka and the Copperbelt, there is no reason why, once advertised internationally, this option would not attract quality bidders. This option could also be tried in more economical routes going forward.”