ECONOMIST Professor Oliver Saasa says despite the Ministry of Finance being the only one allowed to contract sovereign debt, several ministries, with authority from a higher office, have also been contracting debt, which sometimes creates the impression that Finance Minister Dr Bwalya Ng’andu is misleading the country and international community.
In an interview, Prof Saasa, the Premier Consult managing consultant, said both the World Bank and the Finance Minister were correct on Zambia’s debt position, but noted the need for improved debt reporting and monitoring mechanisms to guarantee accurate debt reporting.
He was commenting on the World Bank’s International Debt Statistics 2021 report, which disclosed that Zambia’s total external debt escalated to hit US $27.3 billion by the end of last year, up from US $19 billion by end of 2018.
“The only Ministry that’s allowed to contract sovereign debt on behalf of Zambians is the Minister of Finance. Nobody else is allowed to negotiate and contract debt for Zambia, except through the Minister of Finance. The problem we have in Zambia is that there are many ministries, without the knowledge of the Ministry of Finance, without actually working within the parameters of what government has given as the limits within which they are operating, there are many Ministers that try to negotiate and sometimes get clearance from, you know where, and then it’s reported to the minister and the minister just endorses because it has been reported to State House and it was agreed. But then, it’s running counter to what the Minister of Finance would have expected of his colleagues in Cabinet. You recall the case of the Minister of Foreign Affairs,” Prof Saasa said.
“Now, in a situation like that, reporting becomes very difficult. So, when the minister says, ‘it’s US $11.8 billion (as external debt),’ and then someone says, ‘in fact, there is something that you have forgotten in terms of movements, it’s not that the (Finance) Minister is dishonest, we have to put in place a system that when the Minister says, ‘it’s US $11.8 billion external sovereign debt,’ he actually is correct. He can only be correct to the extent that the system of reporting is accurate and that is really the contention with the World Bank, the IMF and multilateral institutions. Unless we have that system in place, a debt management system, debt monitoring and debt reporting system in place, he himself even if he says, ‘no, it’s US $11.8 billion…’ In the back of his mind, he knows there are frailties in the existing system that need to be corrected and that’s why the IMF, World Bank and a number of multilateral systems are insisting, ‘please, Zambia, before we can talk about forgiving you or restructuring your debt, we must make sure that even what you are telling us is correct’.”
He observed that not all debt recorded as Zambian was contracted by government.
“…It’s just that sometimes when we discuss these values, these volumes, we do not fully appreciate the differences. If you have realised, each time I make reference to the external debt, I am talking about sovereign debt, sovereign means country or government, which means it’s not private sector. Sovereign debt only speaks to the debt that is owed by government or that is guaranteed by government, that is sovereign debt. There is private debt where companies like mining companies or the manufacturing companies or trading companies borrowing from the markets or other sources of borrowing. Those actually are private sector and in most countries, private sector debt is higher than government debt, I think actually here in Zambia it may be about 50 per cent, I don’t want to confirm that, but it’s actually quite high, it may be above 50 per cent, and these are the private sector,” Prof Saasa said.
But he said despite Dr Ng’andu’s honesty about Zambia’s debt position, there was still need to improve on the monitoring and reporting of debt.
“So, yes, the Minister is right. Now having said that, the Minister should be, and I think he has, is among those that would admit, and anyone who knows the debt stock in Zambia would admit that a number of things still need to be done. That even for the domestic, the sovereign debt one, there are still issues of reporting. The Ministry of Finance has accepted that we still need to improve upon the monitoring and reporting of debt because it comes in different forms. Take, for example, the Chinese loans, Chinese debt is where a Chinese firm bids for a government project like road construction; they win it, after winning it, the same Chinese company will go to China and find a financier, that financier will be paying for the services rendered through a construction by a Chinese company in Zambia so the money would not come to the Treasury and, therefore, reporting and monitoring is important. So, sovereign debt is due to the fact that that road was floated by the Zambian government and is a Zambian road and the debt is Zambian debt…Only that the contractor and the financier are Chinese and money doesn’t come into our Zambian system,” Prof Saasa said.
“At that level, it has nothing to do with the government trying to cheat, it’s about the government not having the requisite capacity to be able to capture properly because of the dynamism and complexity involved in the debt acquisition and we have to understand that because of that, there is a problem.”
He also explained that private sector debt usually emanated from private investors who invested in the country.
“Now, the private sector are treated as individual companies or as private individuals when you are borrowing and their servicing is purely commercial, there is nothing like cancellation and the like as you would hope for sovereign debt because you just go and borrow, you invest in a mine, when you see an investor coming in, when you hear that there is Foreign Direct Investment (FDI) coming into the country, it doesn’t mean that these investors are plucking money from their savings, no, they borrow. Your ability to borrow is based on your asset value, it’s like you have collateral and many of these companies, foreign investors, are borrowing from the local banks for investments and some are even borrowing in dollars, so this is how it works,” said Prof Saasa.
“So, the (Finance) Minister is right. I think the World Bank have to look at the figures and look at them correctly. Now, I don’t know how fully captured private external debt is in that World Bank [statement], but of course, you know, World Bank figures are usually more reliable than domestic, local, and it’s not only for Zambia, but for many countries. So, I do not think that they can cook figures or anything only that now, we are combining, we are talking about two different things, and if they are combined, because when you talk about Zambia, you can actually talk about those that are based in Zambia, but you know, when you combine them like that, sometimes it’s confusing because the one that you are including in the Zambian debt stock at the private level, they are foreign investors, they are not Zambian.”
According to the World Bank’s International Debt Statistics 2021 report released last week, Zambia’s total external debt escalated to hit US $27.3 billion by the end of last year, up from US $19 billion by end of 2018.
The report, which comprises detailed breakdowns of what each borrowing country owes to official and private creditors by creditor country, discloses more detailed and disaggregated data on external debt than ever before, taking important strides in filling existing data gaps for low and middle-income countries.
Data compiled by the World Bank revealed that Zambia’s external debt stock stood at an unprecedented US $27.3 billion, of which public and publicly-guaranteed debt was recorded as US $11 billion, while the private sector debt, which included the US $3 billion worth of Eurobonds, stood at a cumulative total of US $14.7 billion.
The US $27.3 billion amount compares to just US $3.6 billion 10 years prior in 2009.
Earlier this year, the World Bank Assessment Report on Debt Transparency among International Development Associations (IDA) countries exposed Zambia’s lack of transparency on debt reporting.
The Assessment Report on the availability, completeness and timeliness of public debt statistics and debt management documents posted on the national authorities website published on April 1, this year, revealed the lack of transparency on Zambia’s debt reporting and that there was partial information available about the country’s contracted loans.