Over the past five weeks we have discussed the implications of high public debt in the country. The alarming rate at which debt has been rising has impacted the economy negatively, contributing to the Kwacha depreciating and increasing inflation which impacts consumers and contributes to slow economic growth. The implications trickle down to ordinary Zambians who end up being taxed more while public service provision declines. Businesses and employees also feel the burden as the cost of doing business increases and could potentially lead to job losses or businesses closing down.
The situation needs to be addressed as it could lead to hard economic times for all Zambians now and also in the future. This article will explore some of the ways the Government can tackle the debt situation which will influence the way Zambia’s economic future plays out over the coming years. By far the most important step toward getting the best deal for Zambia, and reducing the impact of debt on the Zambian people, is to rebuild market confidence in our economy. There are several steps to doing this in the short, medium and long term which will help put Zambia on a more sustainable trajectory:
In the short term
The first step on the road to recovery is to be more transparent on the exact amount of Zambia’s debt, its broad structure, creditors and interest terms. This can be achieved through delivering the promised quarterly debt status reports, as well as publishing the recently conducted Debt Sustainability Analysis (DSA). The publication of these reports would help avoid speculation and for open discussions on the way forward for the country, which will in turn start to build investor confidence in the economy.
In the medium term
Demonstrating improved governance, management and controls over the economy and a willingness to re-engage with the IMF will further bolster market confidence in Zambia’s ability to manage its debt stock. This includes enacting the pending legislation needed to improve financial management in the country. For example, the revision of the Loans and Guarantees Act to allow for parliament to approve loans will help to improve oversight of debt acquisition in the country; while enactment of the Planning and Budgeting Bill and Public Procurement Act will lead to prudent management of public funds. Government also needs to acquire an IMF program to help build up its foreign reserves. This would relieve the burden of interest payments and free up space for spending on pro-poor policies and public service delivery that Zambia needs to continue on a trajectory of economic growth.
In the long term
Actions taken in the short- and medium-term will help strengthen the Kwacha, build up foreign reserves, encourage more foreign investment and, ultimately, help make the longer-term refinancing of existing debt less painful.
Refinancing means that new loans will be raised in order to pay out an existing loan – namely the pending Eurobonds due in 2022, 2024 and 2025. Without taking actions in the immediate future to improve market confidence in Zambia’s economy, however, this option could be extremely expensive as market confidence impacts the rates at which Zambia can borrow money, and could swell the debt stock even further.
Tackling the country’s high debt levels requires bold steps by the Government from the short to long term. Yet building a stronger future for Zambia is not just the job of the Ministry of Finance, but should involve representatives from all sectors of our society. Government should engage business, civil society, economists, researchers, the church and other stakeholders in a constructive dialogue to explore practical ways forward for the economy. After all, debt concerns all of us.