Former Finance Minister Felix Mutati says 2019 has probably been the hardest year for Zambians in the last 10 years from an economic perspective because financial hardships were clearly visible.
And Mutati says engaging the International Monetary Fund (IMF) in fresh negotiations for a bailout package is one of the potential ways that government could use the challenges of 2019 as the basis to build the economy going forward into 2020.
In an interview, Mutati gave an economic overview of how the country has performed this year, what could be done to improve the economy and what his expectations from government were as the country progressed into the New Year.
He, however, lamented that this year was the hardest economically, with double-digit inflation, huge external debt servicing, mounting domestic arrears, among several other outstanding issues.
“2019 is a year where we witnessed an economic downturn and this economic downturn was driven by a number of factors. We began 2019 with high uncertainties regarding the taxation regime, the battle between VAT (Value Added Tax) and Sales Tax. We began 2019 with significant problems in terms of financing the deficit, and as we proceeded during the year, the effects of the drought and the power supply was making life very difficult, not only for businesses, but also for the ordinary Zambian. It was also not quite clear in terms of the implementation of the austerity measures that had already been part of the typical record. We also saw the building up of domestic arrears for our people and then you had a new Minister (of Finance, Dr Bwalya Ng’andu) appointed, he was inheriting this difficult situation. So, the first call was: ‘how do I achieve stability? How do I stop the slide?’ Of all the fundamentals, he found out that all the fundamentals were indicating to him that the economy was in a difficult situation,” Mutati explained.
“The prices of commodities, literally across the board, was on the rise. The cost of money for businesses who had any interaction with the banking system was also rising. More so, it was hurting you and me who have some level of interaction with the banks, it was becoming impossible to borrow. There was a situation where it was becoming so clear that for all of us, it was making it difficult to make ends meet. So, we were in a ‘survival mode.’ Literally, at the human-level and also at the business-level. The economy was contracting, instead of expanding, it was contracting. So, the Minister now comes in and says, ‘how do I create a path? How do I stabilize? It’s a difficult situation.”
He called for a steady inflow of foreign exchange as a means of re-building the economy going forward.
“For me, one is that we need to secure a significant flow of foreign exchange. And this will be significantly influenced by our engagement with the IMF. So, it becomes indispensable that this programme that we have been talking about must be accelerated. This will also impact on the levels of reserves. But also, critically important is that it will lift up the confidence, particularly foreign investor confidence that it’s beginning to happen in Zambia. IMF, unfortunately, are seen as treating a patient and issuing a certificate of fitness. So, once they give you that certificate of fitness, everybody is able to interact with you. So, whatever we do, we need to do that. We also need to focus on ourselves, the people that are doing business with government, suppliers of agricultural inputs, particularly [those] who have been crying that they have not been paid for a long time. Begin to dismantle domestic arrears so that you create and bring back life,” Mutati urged.
“Next is; we have a number of investments from the government side and the reason you make investment is to be able to use them when you are in difficult situations. So, investments under the IDC (Industrial Development Corporation)…are we just going to be looking at them and having the trickle of dividends? Or can we have another combination where we unlock liquidity in some of the IDC investments? All of us, we have investments, but when your creditors are knocking on the door, you have to take those decisions to be able to address your creditors. So, government has got IDC and the rest of the assets that are idle, whether they are in the mining sector or banking, we can unlock some of that to create liquidity that will be pushed into the economy. That, potentially, will create a path in terms of solutions because 2019 has probably been the hardest year in the last 10 years from a purely economic perspective and you could see it at a people-level when everybody is talking about how difficult it is to able to take children to school, to provide the basics at a family-level. The living standard is hurting our people. So, the job for the (Finance) Minister, who has only been there for six months, is a hard job. More so the implementation of the 2020 budget.”
And asked what his expectations for the country’s economy were for the year 2020 seeing that not much had been done to address the country’s economic crisis, Mutati, who also served as Works and Supply Minister in President Lungu’s regime, said there was need to consider re-profiling the country’s external debt as a starting point.
“I think he (Dr Ng’andu) needs to look at re-profiling of this external debt, which has been spoken about quite often and re-profiling the external debt may be initially focusing on the Chinese component and, then, building that process to take into account the impending maturities of the Eurobond. That will sort of relieve the pressure in terms of debt servicing and it will have an impact on the foreign exchange rate, which has a wider effect on the economy,” said Mutati.
“Some of the major things that brought us where we are economically are issues around load shedding, which is a factor of the rainy season. But if we have a better flow of rains this season, obviously, some portion of that will be addressed. But we may not be able to extinguish the load shedding in 2020, it will only be minimized. But we must also [ensure] that [the] Treasury must be spared. The reason that IDC was created [was] for it to use its balance sheet to be able to sort out the parastatal challenges, such as the ones that we face in Zesco so that instead of the money being able to be procured through government, IDC must use the balance sheet and say, ‘let’s attend to this’. That money can be better applied to other more urgent issues, such as dealing with domestic arrears.”