FINANCIAL analyst Trevor Hambayi says government’s move to issue an K8 billion COVID-19 bond will only add to Zambia’s heavy debt burden without addressing the core needs of the private sector who still require much-needed liquidity to jumpstart the economy.

And Hambayi has observed that a stimulus package for Small-Medium Enterprises (SMEs) is the only strategy that can be used to help the country out the current recession because they constitute around 90 per cent of the economy and are the most hit by the impact of inflation.

In an interview, Hambayi, who is also senior partner at Development Finance Associates (DFA), argued that the K8 billion COVID-19 bond issuance was not the right strategy for addressing needy sectors of the economy because it only increased the country’s debt position.

“Firstly, what I heard is they were trying to use the bond to raise money to pay off their arrears, which includes the pension and for the goods and services they have collected. It is obviously positive that they are looking at having to pay off their arrears, so in terms of that bond, government owes K50 billion in terms of arrears, but it is obviously not the right strategy we should have taken because what we are doing now is increasing our debt position by issuing out a bond. Where we are at the moment is that we had arrears, which they have gotten from the private sector, and they are not paying any interest on it. So, my first view in terms of them having to do this was that I thought maybe they might be speaking to say, the IMF, to say, ‘can you give us an interest free loan to pay the arrears and then we are not increasing our debt position.’ The debt is still the same, but we are now going to have to take on an interest loan to pay this debt, which will increase our loan liability,” Hambayi said.

“The second aspect is, yes, it is imperative that we need to clear these arrears. But in terms of clearing our arrears, we must be doing in a way that does not increase our debt position, which is the current challenge the country is facing. And the third aspect is that we need to be able to find resources that are speaking to actually creating a stimulus; the K10 billion that we had is that we needed to find ways to increase access for the private sector so that the K10 billion is used and then any additional amount that comes on board after they have used what they have. Right now, the uptake on the K10 billion has been very low, but…the conditionalities that are going with it will make it difficult to access.”

He further observed that the Zambian economy still required an economic stimulus package tailored specifically towards SMEs to help them pull through the COVID-19 pandemic and help them grow their businesses.

“As a country, we are potentially facing a recession that our economic growth will fall into the negative numbers before the end of the year due to the impact of COVID-19 and there is no other strategy that we should be using in terms of dropping out of this other than to create a backup stimulus to support the private sector to start to grow their business. The key aspect for our country, like Zambia, is that we must appreciate that 90 per cent of our private sector are SMEs so we must be looking at strategies that are going to support SMEs to access funds for us to be able to rebuild our economy, there is no other direction that we can take,” said Hambayi. “That is what we have and that is what we need to work with. If we do decide that we want to support the big businesses, then we are losing 90 per cent of our entire country in extreme poverty because that is what the hands of our incomes of the people really have reduced to almost a half because of the escalating prices and the increase in inflation. So, it’s important that we start talking about creating actual value that is going to be rolled out to our people.”

Cabinet, Monday, approved in principle the establishment of an K8 billion economic stimulus package that would be financed through the issuance of the COVID-19 Bond, with its allocation expected to go towards the needy areas of the country’s economy, including payment to retirees, contractors and suppliers.

It also resolved that it was necessary to provide an economic stimulus through the issuance of the COVID-19 Bond to improve liquidity levels in the economy that had reduced due to the Coronavirus pandemic.