Over the past few years, Zambia has been hit by a severe debt crisis, worsened by an outdated and inadequate legal framework for managing public debt, particularly the Loans and Guarantees (Authorization) Act (LGAA) of 1969. The weaknesses of the LGAA contributed to the weak oversight and transparency on public debt— leading to unchecked debt accumulation and consequently leaving the country vulnerable to financial instability. Recognizing the need for reform, the Zambian government took some measures to overhaul its debt management practices. A key step in this process was the repeal and replacement of the LGAA with the new Public Debt Management Act (PDMA) No. 15 of 2022.

This week’s opinion piece therefore delves into the progress made in implementing the PDMA and its implications for Zambia’s debt sustainability outlook.

As a point of departure, the LGAA was deemed inadequate for managing Zambia’s public debt due to several critical shortcomings. These included weak oversight and accountability mechanisms, insufficient provisions for transparent reporting, and the absence of comprehensive debt management strategies. The Act was also ill-equipped to handle the complexity and rapid pace of Zambia’s debt accumulation. Lastly, the Act did not provide clear guidelines for reviewing loan terms, often leaving giving more bargaining power to lenders.

Therefore, it was clear that the country needed to strengthen its legal framework for public debt management to guard against future episodes of indebtedness. As such, in 2022, the LGAA was repealed and replaced with a new law the Public Debt Management Act (PDMA) No.15 of 2022. The new law provides for significant improvements aimed at addressing the deficiencies of the LGAA by enhancing the transparency of public debt, reinforcing parliamentary oversight on debt contraction, formalising public debt management operations and enhancing debt transparency.

The PDMA is now in its second year of implementation, and substantial progress has been made in bringing all its provisions into operation. Some key provisions operationalized include mandatory presentation of the Annual Borrowing Plan (ABP) before parliament alongside the national budget. This has strengthened parliamentary oversight by allowing parliamentarians the opportunity to scrutinize, debate and approve these two documents simultaneously.

Additionally, the mandatory publication of key documents such as quarterly debt statistical bulletins, annual debt reports, medium term debt strategies, debt sustainability analyses and domestic debt dismantling strategies among others has also gone a long way in enhancing debt transparency. Moreover, key documents such as the medium debt strategies have also prescribed specific rules for external debt contraction, such as prioritizing concessional loans over commercial loans in the medium term to minimize the cost of borrowing and reduce the risk of default.

Furthermore, the ongoing establishment of a Debt Management Office (DMO) within the Ministry of Finance and National Planning, while still in progress, is expected to significantly enhance the government’s debt management operations once fully implemented. Although the Ministry of Finance and National Planning currently has an Investment and Debt Management office that performs some of the functions of a DMO, fully establishing a dedicated DMO as mandated by the PDMA is crucial for alignment with internal best practices. Secondly, it is also important for improving risk management, particularly in areas such as interest rate fluctuations, currency risks, and refinancing risks, especially concerning domestic debt.

The PDMA also establishes fiscal rules aimed at guiding Zambia towards debt sustainability and maintaining fiscal discipline. Key provisions include a debt ceiling that caps external debt at no more than 65 percent of Gross Domestic Product (GDP); a limit on external debt service costs, which must not exceed 20 percent of the average annual recurrent revenue over the past three years; and a restriction on total contingent liabilities (potential debt such as guarantees), which must not surpass 10 percent of GDP for the most recent financial year. While these rules will officially come into effect in 2027, the government’s current debt management efforts, including ongoing debt restructuring, will be crucial in meeting these targets.

However, despite the progress the government has made in implementing the PDMA, several key provisions of the Act are yet to be fully operationalized. This compromises the Act’s effectiveness in enhancing debt management and steering the country back to debt sustainability. Be sure to look out for next week’s opinion piece, where we will examine the significance of these unimplemented provisions and their impact on achieving the Act’s objectives.

About the Author: Peter N Mumba is a policy researcher and development economist currently coordinating the Zambia Debt Alliance. He holds a master’s degree in economics from the University of Namibia, along with additional qualifications in monitoring and evaluation and business information systems.