FINANCE and National Planning Minister Dr Situmbeko Musokotwane says government anticipates that the Official Creditor Committee will be formed within the next few weeks, paving way for commencement of the debt restructuring discussions.
And Dr Musokotwane says the International Monetary Fund (IMF) supports government’s decision to employ over 41,000 civil servants this year.
Giving a Ministerial statement in Parliament on the progress made on debt restructuring with the IMF, Friday, Dr Musokotwane said the Staff Level Agreement had paved way for debt restructuring talks with creditors.
“The Staff-Level Agreement has also paved the way for debt restructuring talks with our creditors. The objective of the restructuring exercise will be to bring Zambia’s public debt back to sustainable levels. This will be implemented while upholding the principle of comparability of treatment across creditors. Zambia’s creditors will therefore be treated fairly under the auspices of the Common Framework for debt treatment beyond the debt service suspension initiative. The Common Framework is an initiative that was endorsed by the G20 and the Paris Club in November 2020 to support, in a structured manner, low-income countries with unsustainable debt,” he said.
“The Staff Level Agreement is expected to culminate into a formal agreement with the IMF board. Under this agreement, the IMF will provide financial assistance known as the Extended Credit Facility (ECF) that aims to provide $1.4 Billion in financial support over the next three years. Over and above the $1.3 billion SDR allocation to Zambia in August 2021.”
He said the discussions with the Official Creditor Committee on Zambia’s debt were expected to culminate in them providing financing assurances to the IMF Executive Board to enable the approval of a US$1.4 billion Extended Credit Facility for Zambia.
“The next immediate step after the Staff Level Agreement was to assess the extent to which Zambia’s debt is unsustainable. The resultant outcome is what is known as the Debt Sustainability Analysis (DSA). The DSA informs the quantum of debt relief the country requires from her lenders in order to return to debt sustainability. The DSA has since been prepared. In the aftermath of the completion of the DSA, the next important milestone is the formation of the Official Creditor Committee. The committee is composed of Zambia’s bilateral creditors,” Dr Musokotwane said.
“The bilateral creditors will analyse Zambia’s debt situation as illustrated in the IMF’s Debt Sustainability Analysis. The bilateral creditors will then provide indications of the debt relief that they would be willing to provide to Zambia and indicate that comparability of treatment which will be expected from commercial creditors. Commercial creditors, though not participants in the Official Creditor Committee, will be invited to provide comparable relief to Zambia to ensure fair burden-sharing. We anticipate that the Official Creditor Committee will be formed within the next few weeks paving the way for the commencement of the restructuring discussions. The discussions with the Official Creditor Committee on Zambia’s debt are expected to culminate in them providing financing assurances to the IMF Executive Board to enable the approval of a US$1.4 billion Extended Credit Facility (ECF) for Zambia.”
Dr Musokotwane said investors were following events in Zambia with a keen eye, hence the need to return to debt sustainability.
“In the meantime, government has continued to work with its advisors in engaging with and encouraging Zambia’s commercial creditors to organize themselves in preparation for the debt restructuring discussions. Madam Speaker, with this progress towards the approval of the contemplated IMF Programme, we hope that our cooperating partners will continue to come on board and provide support through the Budget, especially for priority human development sectors such as health and education,” he said.
“Returning to debt sustainability is important not only to release money for development. It is also important for returning confidence in the economy. Already, so many investors are following events in Zambia with a keen eye. In this regard, government will be embarking on an aggressive reform programme aimed at making it as easy as possible to do business in Zambia. With that in place, the government aims to see to it that the investor interest translates into actual investment. In particular, that should see the start of new investment towards the target of producing 3 million tons in 10 years from now. Also related to that is aggressive growth in value addition, all aimed at creating more job opportunities.”
He said the resolution of Zambia’s crippling debt situation was paramount to reviving the economy.
“I wish to emphasize that the resolution of Zambia’s crippling debt situation is paramount to reviving the economy. We can’t expect a strong economy as long as the debt situation is not brought back under control. The path the country has taken to get into an economic programme with the IMF is the only credible route to arrest the debt situation, [it] is the only credible approach for now that will help to deliver debt relief and a return to normalcy. For this reason, the Zambian Government remains in constant touch with the IMF so that we reach the full board economic programme by the middle of this year 2022. In this regard, Madam Speaker, the Zambian government is firmly on track to ensure that what we have planned regarding debt relief and attainment of the IMF programme becomes a reality without fail,” he said.
Dr Musokotwane said the IMF loan would enable the country to access concessional loans at zero interest rate.
“Madam Speaker, even when we get to debt relief, there will still be debt servicing that will be required, it will give us relief but it will not take us off the hook. So it means that more money is required for development. The difference however this time is that the money that is being borrowed is concessional. It means that there is zero interest, there is no interest that we will pay on this loan. The ones which we were borrowing at 12 percent, for the first time it is money borrowed at zero percent. For five and a half years you will not be paying anything because of the grace period. The remaining period after the five and half years elapses, you will have 10 years to pay back,” he said.
“So in between we are also not lying idle, the economy is being restructured, so that it grows, so [that] this concessional financing that is being given to us gives us the space to grow the economy, make it bigger, come close to those 3 million tons of Copper I was talking about. So that this money we are borrowing from the IMF now, when you start paying it, the economy is bigger and can be able to easily service whatever you have borrowed.”
And Dr Musokotwane said the IMF was in support of government’s plan to employ 41,000 civil servants.
“Yes, there are some reform measures that we have agreed upon. Remember we are now at the Staff level agreement, it is not a formal agreement, the formal agreement will come either May or June and at that point the formal agreements will be laid bare on the table for you and I and everybody else to be able to understand. But the thrust of it really is not what you seem to be fearing that perhaps we are going to make life unnecessarily harsh for these people of Zambia. So, in all, it is actually about providing money to those who have been ignored for years and years including the CDF. The IMF is aware of the fact that we are providing this enhanced CDF to the lower levels,” said Dr Musokotwane,
“The IMF are in agreement that this year we will hire 11,200 health workers and 30,000 teachers. Madam Speaker, the modern economy is premised less on the natural resources that you have and more so on the brainpower of the citizens of the country. So yes there is absolutely no problem with that, it is all agreed and sealed up. The money is ready, my colleagues are about to recruit.”