IMF is right about Zambia’s debt – Chikwanda

Former Finance Minister Alex Chikwanda

In this audio, Former Minister of Finance Alexander Chikwanda says the International Monetary Fund’s concerns on Zambia’s debt are not far-fetched.

And Chikwanda says it does not make sense for a country like Zambia to have a GDP of $26 billion.

Meanwhile, Chikwanda says inflation figures are unrealistic because they do not take into account factors like rentals or transport but only basic food items.

On Tuesday, IMF observed that Zambia’s ballooning external debt put the country at high risk of debt distress.

The IMF said although the near-term outlook for the Zambian economy has improved in recent months, the country’s fiscal imbalance has remained very high.

When asked for his interpretation of the IMF statement at a PF Interactive Forum today, Chikwanda, who also chairs the PF Committee on Finance, admitted that Zambia needed to slow down on borrowing.

“The IMF has expressed worries about Zambia’s debt profile, those concerns are not far-fetched but anyway, somehow our debt profile is high and going in future, going forward we should be a bit more prudent especially those loans which are not for projects which are single sourced, where there is no tender and so on and so we have to be careful and I think government is doing just that,” Chikwanda said.

Chikwanda however said that government had never defaulted on repaying debt, adding that there was a possibility that when the bonds were due, there was a possibility that they could be rolled over.

“But you know, even in government there are some skills which some citizens may not be aware so the guys in the treasury, they have been very good at managing the debt, there’s not a single day we have faulted on debt repayment which will mean that we can use that track record going forward for instance when the next bond is due, and I think officials from the Ministry of Finance have already made reference to that, it can be rolled over because the people who have invested in these bonds are making a lot of money,” Chikwanda said.

“Just look at the bond yields in the other developing countries, in the US, the yield is between 2 and 2.4. In Germany, the 10 year bond is .46 as of this morning so investing bonds in developing or emerging countries like Zambia, even at 6 or 7 per cent, you are making a healing so the people who have invested in our bonds are actually long term investors, they are a pension fund, they are not in a hurry to get paid like yesterday so there is a possibility.”

He said going forward, there was need for the country to be more prudent with resources.

“But going forward, we must really be a bit more reticent, a bit more prudent and the consolation is that okay, all the money has been borrowed to take the country forward. If there was no borrowing, the country would have stood still and Zambia needs to grow at higher rates, not five per cent, we need growth rates in double digits and some of the borrowing will facilitate that,” he said.

He observed that the people who benefited the most from infrastructure projects were contractors who operated on inflated prices.

“But as I said, some of the big infrastructure investments, they don’t create employment in the immediate because they are very capital intensive. In fact, the people who get rich are the suppliers of earth-moving equipment and contractors who do the job at exceedingly inflated prices and a lot of margin which they take out of our country,” Chikwanda said.

He explained that if the IMF approved the $1.3 billion for Zambia, it would be for balance of payments and not project support.

“What the IMF are saying justifiable but you know, they will make available the $1.3 billion. Now there are even some of the educated Zambians joining in misleading people, that money is not for project support, that money is for balance of payment support. Support our balance of payments for the imports and so and reserves that the Bank of Zambia will increase by that amount and that’s the purpose of that. It is not for project support, the IMF don’t lend you for project support, you will go to the World Bank, you will go to the other institutions, Indian Investment Bank and so on and so forth,” Chikwanda said.

“So that loan we get from the IMF, I don’t know, maybe it is paid over 10 years, may be paid in six months installments which means if it is paid in six months, every six months we have got to find $60 million to pay. That whole cost increases the country’s debt service burden and so when the IMF express concern, it is partly they are worried about whether we will be able to service the debt we get from them and my inclination is that we will be,” he said.

Chikwanda said it was unfortunate the 60 per cent of the budget was spent on emoluments.

“But what is happening now, between emoluments, emoluments account for an excessive proportion of the budget, more than 50 per cent of our revenue goes on emoluments for the bloated civil service and then debt servicing, between debt servicing and emoluments, you are talking in terms of about 80 per cent of the budget, of the revenue, which means 20 per cent is what is left to run the government including the armies and the police so there is a strain in service provision but government is doing the best and I think that the officials we have entrusted to manage our economy, they could be a little more resourceful but they do manage,” he said.

Take a listen:

And Chikwanda said it does not make sense to have a GDP of $26 billion in a country like Zambia.

“Zambia’s Gross Domestic Product is about 26 billion according to our officials who refuse to think, and the World Bank economic indicators of 2015 puts Zambia’s GDP at 26 billion using the atlas route and at 55 billion using the purchasing power. But my own considered view is that Zambia can’t be less than 60 billion GDP, this would mean that our combined internal and external debt as a proportion of GDP is less than 20 which raises our bank ability in the global financial market place. And I thought I heard in the budget speech that the combined debt ratio [both] external and internal was 47 per cent, this is because we are using the figure which is our diligent civil servants maintain but we need to complete Zambia’s GDP and institutions like the IMF are all prepared to help,” he said.

“Otherwise ordinary people including here in Lusaka if you go round, you will see the massive construction that is going on, people have not borrowed from banks, they have no mortgages so there must be money in the economy. We can’t have a GDP of K27 billion it just doesn’t make any sense but we are officials who take pride in putting a caveat in thinking that GDP is 27 billion.”

Meanwhile, Chikwanda says inflation figures are unrealistic because they do not take into account factors like rentals or transport but only basic food items.

“What government should be worrying about now is how we get the economy to a higher level and how we relieve the hardships. You know people are really feeling the squeeze, the cost of living is high and although we are told inflation is only six per cent, but the way inflation is computed in every country, there is a basket, items which you put in that basket, you will put in food items but you have not included transport, rent, which are costly and so on. So all inflation figures, whether in Zambia or in America or England or in Russia or China, they have an aura of unreality because they only put few items in the basket,” said Chikwanda.

“It doesn’t mean that all the prices in the economy are kept at bay. The prices of food, kapenta and so on, maybe the prices have only gone up by six per cent but other things, have gone up, even charges by people working in the informal sector. So it is not a measure of everything.”

Chikwanda also said job creation had to be elevated to a serious crusade because the population was growing rapidly.

Chikwanda further observed that those who had appointed themselves anti-corruption crusaders were the high priests of corruption.

         

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