Economist Professor Oliver Saasa has advised the Zambian government to tame its debt appetite in 2020 and cautioned it against defaults on loan repayments in the new year.
Prof Saasa, the managing consultant at Premier Consult, urged the government to ensure that debt obligations are planned for and paid on time as opposed to the poor handling of repayments that even led to sanctions being placed on the country by the African Development Bank (AfDB).
The African Development Bank (AfDB) has since lifted the sanctions imposed on Zambia after confirming receipt of the US$1.4 million debt owed to the bank.
In an interview, Prof Saasa said the government needs to ensure payment of obligations as they fall due.
“Firstly of course, the lifting of what appeared to be sanctions is positive, it’s good and the African Development Bank is a very strategic development financier in Africa and we are members of that bank and being in good books in terms of meeting our obligations to our institutions, not only to the African Development Bank, there are several others where we are, like the Trade and Development Bank that we currently owe. There are different ways where when you are defaulting or there is a threat of default, you can renegotiate the loan in a manner that allows you to extend the tenure for you to be able to remain afloat. But of course, that’s not really the option that the entire nation would aspire for unless there is very serious fiscal stress. The important thing is to make sure that whatever commitments we make as a country to these international, multilateral, bilateral institutions, we have the requisite resources in terms of collecting as government, to pay them as they fall due. I think this is a broad issue that we perhaps haven’t managed very well,” Prof Saasa said.
He urged the government to “cut its dress according to its cloth” as it looks to contract debt.
“It starts from the speed at which we contract sovereign debt. My appeal is that there must be moderation. We have to cut our dress according to our cloth and that essentially means that you look at the projected revenue base and resources and…before you contract, you are sure that you will be able to service and meet the obligations when they fall due. If you look at the speed at which we have, in the last four years or so, contracted external debt…but domestic is actually also crippling, now the government admits, with external debt, there is no mercy,” Prof Saasa said. “You see, before where you had contracted concessional aid, especially bilateral aid or debt or aid that has a repayment condition, that time when we had that, it was easy for another country to cancel and we did benefit from the cancelation when we hit in excess of US$7 billion and they cancelled everything except up to only US$500 million, you recall. So it’s a question of ‘can you tame your appetite, can we tame our appetite to contract debt?’ That is the most important thing that we have to guard as we get into 2020.”
He advised the government to seek concessional loans if need be than procuring private debts.
“What we have now is debt which is non-concessional, meaning it’s debt which is private debt from the capital markets, whether Eurobonds or from the international banks that never cancel. You can restructure, you can renegotiate but cancellation is almost non-existent in terms of the options that are available to government. Because of that, we now need to be extremely careful as a country how much we contract and if it’s possible, look for debt that has a concessional element. Concessional debt, where you know the conditions are flexible, they are not easy to come by now, especially for countries like Zambia which have already been classified as a lower middle income country, we are not classified as a poor country anymore,” said Prof Saaa.