Govt must consider cutting emoluments to manage debt crisis – CSOs

29th May 2019

Local

L-r: Center for Trade Policy and Development executive director Isaac Mwaipopo, Actionaid executive director Nalucha Ziba, Caritas Zambia executive director Eufene Kabilika and Alliance for Community Action executive director Laura Miti during the joint Civil Society Organisation press briefing in Lusaka on June 12, 2018 - Picture by Tenson Mkhala

Local

L-r: Center for Trade Policy and Development executive director Isaac Mwaipopo, Actionaid executive director Nalucha Ziba, Caritas Zambia executive director Eufene Kabilika and Alliance for Community Action executive director Laura Miti during the joint Civil Society Organisation press briefing in Lusaka on June 12, 2018 - Picture by Tenson Mkhala

A consortium of seven Civil Society Organisations (CSOs) say Zambia’s debt has created liquidity problems in the economy and contributed to a loss in investor confidence, forcing government into harmful policy decisions.

And the CSOs say in order to manage the debt situation, government should implement a genuine austerity budget for 2020.

Meanwhile, the CSOs say there is a burdensome increase in the cost of living for poor Zambians.

In a joint statement issued by Consumer Unity and Trust Society (CUTS), Centre for Trade Policy and Development (CTPD), Alliance for Community Action (ACA), Oxfam, ActionAid Zambia (AAZ), Civil Society for Poverty Reduction (CSPR), and Non-Governmental Gender Organisations Coordinating Council (NGOCC), the CSOs also welcome President Edgar Lungu’s decision to call for an urgent cabinet meeting to discuss the country’s economic outlook and the current debt situation.

The CSOs advised government to implement a genuine austerity budget for 2020 but in the meantime consider cutting emoluments to manage the crisis.

“The country’s debt situation remains at the heart of many of the economic problems we see today, and many citizens are beginning to recognise this. In the first quarter of 2019, debt increased by over $125 million. The country’s national debt currently stands at over 70% of GDP. With over one in four Kwacha budgeted for debt servicing as indicated by the 2019 national budget, debt has created liquidity problems in the economy and thereby contributed to a loss in investor confidence forcing Government into harmful policy decisions. In order to address the debt situation, government needs to implement a genuine austerity budget for 2020 but also begin to undertake austerity measures immediately. Social protection spending to Zambia’s most vulnerable citizens, however, must be protected, meaning that Government must look to cutting emoluments, reducing capital investment (such as suspending plans to launch a national airline), and streamlining social spending where there are opportunities. Examples include continuing to reduce the Food Reserve Agency reserves as well fully rolling out the e-voucher FISP program,” the CSOs stated.

They also appealed to government to improve transparency on pipeline debt

“Government needs to take immediate action to improve cooperating partners’ and investors’ confidence in the markets through robust financial management. This includes implementing long-overdue financial oversight reforms, improving transparency on pipeline debt and revising the Medium-Term Expenditure Framework. The revision and enactment of the Loans and Guarantees Act and the Planning and Budgeting Bill respectively would also serve to achieving this objective,” the CSOs further proposed.

“Thirdly, government must take a number of policy decisions to address Zambia’s debt and promote private sector-led growth. It must look to dismantling pipeline debt and restructure existing debt through meaningful discussions with China. In addition, government must look to empower the private sector as the engine of growth, rather than infrastructure spending: this means resolving issues with the mines and improving linkages with domestic firms, dismantling arrears to improve liquidity in the economy and improving access to finance for SMEs.”

The CSOs stated that taking the above steps would allow government to refinance its debt and relieve the pressure of debt servicing on the budget and wider economy.

They also asked government to delay the implementation of the Sales Tax.

“It is important to discuss how the Government seeks to address the inflationary impact that Sales Tax will have. Stakeholders have urged the Government to consider delaying its implementation in order to allow the Government time to fully develop a model that will have the least negative impact on growth, inflation, trade, jobs and revenue. According to ZIPAR, research indicates that the effective tax rate under Sales Tax will likely be 23%, up from 13% under VAT when accounting for exemptions. Pushing up prices will harm businesses and consumers and result in job losses,” they said.

“It is [also] important to discuss how the government will seek to resolve the standoff between the Government and the mines. Mines are the largest source of foreign exchange in Zambia. Foreign currency is needed for debt repayment and stabilising the economy from shocks. At present, the country’s foreign currency reserves stand at $1.43 billion which translates to 1.6 months import cover. In the first quarter, we saw that copper production had contracted by 11.3% in the first quarter.”

Meanwhile, the CSOs urged government to support the private sector by settling debt owed to them.

They further noted that the 2018/2019 country’s poor harvest and global economic slowdown had left the economy vulnerable, with growth forecasted to slow to 3.1% below the margin of achieving meaningful poverty reduction.

They stated that the increase in the cost of living was burdensome for poor Zambians.

And the CSOs called on President Lungu to broaden consultations on the economy by engaging local think tanks and civil society organisations that have actively been monitoring economic performance.