THE Jesuit Centre for Theological Reflection (JCTR) says it is unlikely that the 2021 budget will deliver on economic stimulation resilience, given government’s huge debt repayments amounting to a total of over K45 billion.
In a statement, Tuesday, JCTR executive director Fr Alex Muyebe lamented that government’s move to ensure it avoided default on debt repayments was being done at the expense of national development.
“Although efforts have been made by government to ensure that Zambia does not default on its obligations reflective through budget allocation towards debt and dismantling arrears, it should be noted that this is taking place at the expense of key national development imperatives. In line with the budget theme, JCTR clearly notes that it is highly unlikely that the budget will be able to deliver on ensuring that economic stimulation and resilience is attained. It is important to admit that the high indebtedness, coupled with current economic and financial conditions, such as low national reserves, high inflation rates and volatility of the currency, will render the aspiration of stimulating the economy impossible,” Fr Muyebe stated.
“As alluded to by the Minister in the proposed 2021 budget, external public debt stock increased to US $11.97 billion as at end-June, 2020, from US $11.48 billion at the close of 2019, representing an increase of 4.3 per cent. Debt payments alone in the proposed budget will account for approximately 41 per cent of the K119 billion budget. This is higher than the combined allocation to key social sectors; health, education and social protection that are only allocated 23.6 per cent. A detailed look at the domestic stock also notes that government securities increased to K114.3 billion as at end of August, 2020, from K80.2 billion as at end December, 2019, inclusive of the K8 billion COVID-19 Bond. Furthermore, when looking at the 2021 resource envelope, it is clearly proposed that 44.9 per cent will be financed through borrowing, both domestic and external. This is higher than the 2020 proposed financing envelope that stood at 32.2 per cent.”
He, however, applauded government’s move to restructure the national debt and called for deliberate efforts to tackle the debt problem as opposed to relying on debt forgiveness.
“Nevertheless, JCTR applauds government on strides made to cancel, restructure and refinance existing loans. It was noted by the Minister of Finance that US $1.1 billion pipeline loans have been cancelled and US $280.0 million has been saved from the re-scoping of projects. This is, indeed, one step in the right direction. The Centre implores the Ministry of Finance to provide consistent periodic updates with as far as any liability management strategy aimed at putting our public debt on a sustainable trajectory. JCTR reiterates that debt forgiveness or moratorium are not guaranteed and if given are not the Holy Grail to solving our debt problem. Therefore, deliberate efforts to tackle the challenge of debt head-on beyond reliance on ‘debt forgiveness’ must be made. Take, for example, suspension of debt service payments totalling US $139.2 million expected under the G20 Debt Service Suspension Initiative (DSSI). This figure is equivalent to 0.6 per cent of GDP and 1.2 per cent of Zambia’s total external debt stock. The marginal impact of the DSSI on debt service requirements is explained by the structure of the financing of the country. Most of the public sector borrowing originates from multilateral and private sources. These creditors account for 73.3 per cent of external public debt,” stated Fr Muyebe.
“It cannot be overstated that high debt servicing has evidently compromised budget allocations to social sectors, such as education, health and social protection. Budget credibility does continue to be of concern for JCTR as budget execution has over the years been very poor in Zambia. Expenditure out turns have time and again been at variance with budget allocations. For instance, while a call in 2019 was made to narrow the fiscal deficit to 5.5 per cent of GDP, the outturn stood at 11.7 per cent. The result: cutting of social sector spending thereby compromising human development outcomes. It, thus, remains imperative that debt sustainability is operationalised through our own commitment to do better for our nation and this must be reflected in all key national macroeconomic frameworks, especially the national budget.”
Next year’s budget reveals that K27 billion will be due to be spent servicing Zambia’s external debt alone, up from this year’s K21.1 billion allocation, representing 23 per cent of the total budget amount, while domestic debt servicing will equally jump to K18.3 billion next year, up from K12.6 billion allocated in this year’s budget.
