Economist Lubinda Haabazoka warned that government’s move to put on hold construction projects that are below 80 per cent completion would cost government twice as much.
And Dr Lubinda says Zambia will pay back its huge public debt contracted with ease provided the country’s economy grows faster.
In an interview with News Diggers! Haabazoka said Finance Minister Margaret Mwanakatwe’s recent move to limit travels for civil servants and put on hold projects that are below 80 per cent completion would only cost government twice what it should have initially cost them.
“I think that much of the measures pronounced recently, are long-overdue, and I think as a country it is wrong for government to cut on projects that were already started. First of all, the practice should have focused on measures to ensure that we increase government revenue through non-tax measures and see how we can come up with a clear plan of debt amortization. When you look at the idea of this process, we are just spending building infrastructure for the future using future resources. Now, the problem with cancelling already signed contracts is that, the government will end up paying more in two areas. One, for delayed projects, because contracts have already been signed, you are going to still meet the terms and you pay escalated prices. Where you cancel a project, you are going to pay damages. So, you end up paying 80 per cent for example, or whichever percentage, where the projects have not been implemented. So, this government should ensure that basically we don’t procure new loans, but we find ways of financing existing projects,” Dr Haabazoka said, Monday.
“Number two, we are not only putting the burden on government, we are also killing our local contractors by delaying the projects. Because these would have spent substantial amounts of money to mobilize and do those projects, some of them even borrowed against the contracts. So, how are they going to cushion the damage that government has done? I know the debt is about $13 billion, it’s huge.”
He added that government wouldn’t save any money by limiting civil servants’ travel.
“But limiting travel by civil servants; how much money can you save from that? You are going to save nothing. In fact, you will reduce productivity because civil servants also need to travel to go and establish contact abroad, and also as an incentive to do a great job. So, we should just think about growing the economy to ensure that the debt we have contracted is dealt with.”
And Dr Lubinda said Zambia would pay back its huge public debt contracted with ease provided the country’s economy grew faster.
“When you look at our debt as officially given, I don’t think it would be difficult to pay back. I don’t think it is something very worrying; it can be worrying because it is something contracted in a very small period of time. But if you look at the maturity period, some loans will, for example, mature later after 2021. If you grew the economy, you find that as you grow the GDP (Gross Domestic Product), the loans look small for a country because you are able to generate enough income to amortize it. So, the reason why the debt has accumulated is that our economy is not growing at the rate it should to make our loans small. But we can do that, and we can pay back with ease and no stress. When you look at the economy of the USA, they have debts of about US $13 trillion, but for them, the economy is huge. So, for them that loan is manageable, so without pointing fingers we have to be clever around the system by ensuring that [we] grow the economy,” Dr Haabazoka added.
“But you see, our GDP at some point was $26 billion so it means our economy has fallen and the loans that we thought were within our means are now outside our means, so we ensure that we enhance economic grow. Our economy shrunk because of the power crisis some two years ago among other factors, not also overlooking high taxations among formal sector employees. Despite having high copper prices, we do not have enough power to meet the demands in the mines. So, those are the issues we are supposed to address now to ensure that we are back of the ground because if we grow our economy to $30 billion of the GDP, it’s very possible that this can be addressed by 2020.”
He emphasized that the mining sector should bear the brunt of the country’s tax burden.
“We need to tax our mines properly. The debt pay-back burden should not fall on Mr Mweemba or Mr Mulenga working in the formal sector. The burden should fall on our mineral resources because that is what when God was designing this country, that is what he gave us to say, ‘this should come and help us in the future.’ So, despite high prices, we are supposed to pay back with ease. Why aren’t we getting enough resources or why is it that our mineral resources are not impacting infrastructure development? Those are the questions. These measures that the Minister (of Finance) announced are long-overdue, but this should be a small cost on government coffers. Contractors of nowadays are very clever; if they feel inconvenienced they go to court, especially the local ones,” said Dr Haabazoka.