ECONOMIST Chibamba Kanyama says government should show a tangible course of action towards attaining debt sustainability during the ongoing International Monetary Fund (IMF) talks because this will determine the country’s success of securing the long-awaited bailout package.
Government is currently in talks with the IMF on a possible Extended Credit Facility (ECF) programme and is expected to end on March 3, 2021.
In an interview, Kanyama observed that the country now had a great opportunity to finally get on an IMF-backed economic programme, but warned that there might not be the much-needed immediate disbursements of funds as they would be based on government’s fiscal performance.
“The key issues to determine the success of the Zambia-IMF talks Zambia is for us to show the tangible and quantitative course of action that will make our debt sustainable. Unlike what we experienced in the past five years, there now exists a great opportunity for an IMF programme. However, knowing the IMF and how it has dealt with countries like Ghana in the most recent past, there will be no immediate disbursement of funds. The disbursement of the much-needed funds will be tranche-based, meaning it will be tied to fiscal performance, tranche-based financing,” Kanyama said.
“As the IMF advises Zambia on a programme of deliverables to achieve debt sustainability, it’s a question of Zambia’s capacity and willingness to absorb these conditionalities given that the Fund will dangle financial support for each benchmark achieved.”
He argued that given the enormous fiscal challenges the country faced, it might be difficult for government to come up with a clear pathway to fiscal consolidation and debt sustainability.
“The backdrop to these discussions is poorer asset quality, which has deteriorated as a result of high debt servicing: unstable exchange rate, low reserves, difficult macroeconomic environment, continuing downgrades by reputable rating agencies and high inflation. Given the nature of the challenges before us, coming up with a clear pathway to fiscal consolidation and debt sustainability may be quite a challenge just by assessing the platform used for negotiations. There is a seven-hour (time) difference between Lusaka and Washington, DC, meaning there is already a level of compromise on the quality of input from Zambian technocrats. However, given that debt management consultants, Lazard Freres, have been working behind the scenes to interrogate data, it’s most likely the quality of Zambia’s responses to the IMF enquiry will be far more satisfactory than before,” Kanyama said.
He further advised government to demonstrate its capacity to reduce the fiscal deficit.
“In order to fully leverage this opportunity and turn the discussions from a mere Article 4 Consultation to a possible IMF Programme, Zambia needs to demonstrate capacity to reduce the fiscal deficit that is now a double-digit figure. What measures will the Minister of Finance (Dr Bwalya Ng’andu) put in place to ensure fiscal policy tightening more so that inflation is now on an upward path? How can we start rebuilding international reserves to at least three months of import cover by 2022? The 2021 national budget is already experiencing challenges because of high inflation and other factors,” he said.
“The concern for everyone, now, is that Zambia cannot contain economic shocks such as the COVID-19 pandemic, international oil prices or even a drastic drop in the price of copper. Debt acquisition, on the other hand, has been a moving target, implying that even if there has been suspension on some projects, the stock in arrears has been accumulating because of contractual penalties.”
And Kanyama called for transparency and flexibility from government during the talks and urged Finance Minister Dr Bwalya Ng’andu to demonstrate commitment, even in an election year.
“In addition, government authorities will need to be flexible and transparent during these discussions. The temptation is to engage the IMF for purposes of signalling a message that creators and other bondholders want to hear. The bondholders hardly take these discussions seriously at the moment. It, therefore, means Dr Bwalya Ng’andu should demonstrate that even in an election year, Zambia is committed to undertake bullet-biting measures to restore the Zambian economy to stability. He should show commitment to reduce subsidies wherever they exist; continue to revise the Farmer Input Support Programme; attend to concerns about the role of the Food Reserve Agency (FRA); manage the wage bill for the public sector and above all, stick to the public finance management framework, more so in an election year. Dr Ng’andu should also demonstrate to the IMF that Cabinet takes his advice as Finance Minister seriously, especially on fiscal discipline, management in parastatals, that the IMF consider to be a potential drain on State coffers. He should also make a firm position to the IMF regarding the establishment of the national airline and nationalisation of mining companies. These things will definitely emerge during the ongoing discussions,” said Kanyama.