Dear Your Excellency, Honourable Minister
This letter is written by people who have held top economic management positions at various times since 1991. We have all been privileged to be part of the various leadership teams that achieved some of Zambia’s most significant economic successes. We hold different opinions on a range of issues affecting the nation, but we have informed and shared views on the present direction of the national economy.
Zambia is currently living under very tough economic conditions. The economy is on the verge of collapse. Growth is expected to be negative this year, which will cause unemployment and send thousands onto streets. Incomes will fall and business will fail. The public budget is in disarray, failing to fund basic services. The Kwacha is rapidly losing value, driving rising inflation: this will quickly accelerate if the government pushes the Bank of Zambia to print money to compensate for lower tax revenues.
It may be true that external factors (climate change and Covid19) have damaged the Zambian economy. But the main cause is man-made policy mistakes. The most significant mistake is excessive borrowing by the government, as well as inefficient and/or low priority use of funds.
The Government needs to act now.
We believe that Government must rapidly conclude a programme with the International Monetary Fund (IMF). This matter has been on the table for more than five years, without reaching a deal. We urge the government to take this matter with the seriousness that it deserves, and to come to an agreement before the end of this year.
We believe that the most important matter in our economy is the debt problem. Excessive debt drives many of the current problems – huge repayments already mean that Government cannot fund budgeted programmes, mounting arrears are accumulating on many government contracts, and the business climate is strangulated. Serious economic progress or significant job-creating investments are unlikely while huge debt overhang remains.
Zambia is already struggling to pay its debts. Indeed, with the depreciation of the kwacha it is likely we will start defaulting on debt soon, creating economic chaos. If we do not have a solution in place before the first maturity of the Eurobond in 2022, the situation will be much, much worse. Despite this, our Government keeps on borrowing.
An IMF deal is essential to resolve the debt problem. Any other solution will require handover of significant sovereign assets, and must not be entertained.
An IMF deal brings money to the country, but it also sends a signal to the outside world that the recipient country is taking measures that will take it out of trouble. A deal will encourage inwards investment – and we need huge quantities of investments to boost incomes, increase tax revenues and enable us to pay off our debts.
A deal requires Zambia to meet performance benchmarks on sound economic management. These may be tough, but they are necessary. When we meet these benchmarks, the institutions and countries that are owed money by Zambia will agree to reschedule debt, giving the economy some breathing space. Investors (Zambians and foreigners alike) will feel confident to spend money and create jobs in our country. This is what Zambia needs. This will cure many of our self-made economic problems.
Reaching a deal with the IMF is not just about talking. We need to take measures to convince them that we are serious. This means that:
• Government must stop borrowing immediately.
• Government must halt unnecessary projects, stop wasteful expenditures, and fund only essential economic activities and basic services.
There is a growing image of Zambia as the ‘wild west’, where the application of the law and work of statutory bodies is arbitrary, and political. This also makes recovery impossible. Who will invest in a country where assets can be seized, or contracts are irrelevant? Government must immediately allow the professional functioning of all statutory institutions, and respect the rule of law.
We therefore urge the government to immediately focus on creating the conditions for fruitful engagement with the IMF, and ensure that a programme is agreed before the end of 2020.
Hon Dr. Situmbeko Musokotwane MP, former Minister of Finance, Deputy Governor Bank of Zambia and Economic Advisor to late President Mwanawasa
Ng’andu Peter Magande, former Minister of Finance
Dipak K.A. Patel, former Minister of Commerce, Trade and Industry
Felix Mutati, former Minister of Finance
Dr. Caleb Fundanga, former Governor, Bank of Zambia, former Executive Director, African Development Bank
Dr Moses Banda, Economic Advisor to late President Levy Mwanawasa