The Centre for Trade Policy and Development (CTPD) says the Zambian government must avoid printing money to service domestic debt because this has a negative effect on macro-economic stability.
Rising public debt in the country has been a major source of concern as Zambia’s external debt increased by US $1.3 billion in 2018 alone, which included 16.5 per cent increase in loans from the EXIM Bank of China and 27 per cent increases in loans from the China Development Bank, according to the Ministry of Finance, putting the country’s total external debt at around US$10.1 billion by the end of the first quarter of this year.
Speaking during the launch of the report titled “Weathering the storm of rising public debt: options for public debt management and debt restructuring in Zambia”, CTPD lead researcher Bright Chizonde advised government against printing money to service debt in the short-term.
“Government should avoid printing money as an option to servicing domestic debt in the short-term as this has negative effects on macro-economic stability. Chinese loans need to be renegotiated by debt experts from Zambia in order to address the issues of project over-pricing. In the long-term, Zambia can prioritise the construction of strategic capital infrastructure and enter into Public Private Partnerships (PPPs) with Chinese companies for the recouping of investments,” the Report, which Chizonde presented, read.
The report stressed that Zambia was in urgent need of a debt management strategy even as the country looked to achieve the Vision 2030.
“For Zambia to minimize the cost of restructuring its debt, there is need to first find a strategic partner, such as the International Monetary Fund (IMF) through a country programme like in the case of Ghana. In the short-term, it is critical to deal with the public and private sector liquidity by implementing austerity measures and dismantling domestic arrears. Getting the IMF on board should be taken on in the medium-term in order to reduce the cost of refinancing by restoring investor confidence,” read the report.
“CTPD urges the government to improve its debt management through improved transparency and the developing of a sound debt management strategy. Debt restructuring provides an opportunity to resort government social sector spending, and improve Zambia’s current economic situation, provided the temporal relief it brings is not abused by contracting more debt.”
It added that Zambia must learn from other African countries who had acquired Eurobonds, such as Ghana, to understand how to manage the mounting public debt.
“Lessons that we can pick from Nigeria is that, the Zambian government should ensure that the total debt stock is reduced to less than 60 per cent of the country’s GDP and reduce domestic borrowing to avoid crowding out the private sector. And we recommend that in the short-term, government should focus on halting debt accumulation, restoring investor, donor and private sector confidence, focus on both public and private sector liquidity from loan recovery and macro-economic stability,”read the report.
Meanwhile, Development Finance Associates senior partner Trevor Hambayi called for transparency from government on the country’s debt stock as there was a lot of hidden debt that still needed to be accounted for.
“I think as a country, and as a nation, we need to accept where we are, the question that we must ask ourselves is: what is in the best interest of the country? While we are servicing our external debt, everything else in the domestic is dying! We have been quoted on every other service; we have gotten to a point where we are not able to meet our local expenditure like salaries as well as abandoning of projects. The other aspect is the transparency issue; we keep saying that we haven’t defaulted, but we also haven’t said what our debt position is. If you ask anybody, they will tell you that ‘I am not sure what the country’s debt position is’ and when you ask the Ministry of Finance, they keep talking about the pipeline debt. So, we seem to have a lot of debt that is hidden and this has an effect on our debt portfolio. We have got the pipeline debt, which is Chinese, just yesterday (Wednesday) we heard that the Chinese have cancelled US $22 million debt, yes, it’s a very good thing, but the sad aspect is that if you look at our debt portfolio, which is the list of debt that we have, you do not find this debt. So, we have been forgiven of a debt that we didn’t have in our books,” said Hambayi.