The Zambian government must heed the warning from the 2020 World Bank Report that states that rising debt can be detrimental to the national economy, says JCTR media and information officer Enock Ngoma.
In a statement, Ngoma stated that the World Bank Global Prospects Report highlighted that at the backdrop of every country’s debt management efforts, there was need for strong regulatory and supervisory regimes, good corporate governance and improved debt transparency and management, among others.
Reacting to a story published in the Zambia Daily Mail under the headline: “Borrowing is Beneficial,” citing the 2020 World Bank Global Prospects Report, Ngoma argued that the story failed to highlight the risks of borrowing.
He insisted that the Report should not be misconstrued to mean that borrowing had no limits.
“It is very surprising and saddening that on Monday January 13, 2020, the Zambia Daily Mail carried a headline titled: “Borrowing is Beneficial” citing the 2020 World Bank Global Prospects Report without highlighting the risks that come with borrowing. These risks that the World Bank highlighted in its report are the major concerns of most critiques of Zambia’s borrowing, including JCTR. We, therefore, note with concern that such publicity has the potential to be detrimental to the calls for the prudent financial management of public resources. The JCTR wishes to, therefore, emphasize that the World Bank Report should not be misconstrued to mean borrowing has no limits. Evidence, both globally and domestically, indicates that rising debt can be detrimental to the national economy,” Ngoma stated.
He warned that excessive debt accumulation had the potential for adverse economic and social consequences for any given country.
“Therefore, while it is true that external debt (given certain prerequisites) is critical in financing growth – enhancing investments, such as infrastructure, healthcare, and education, it is, however, also evident that excessive accumulation of debt holds the potential for adverse economic and social consequences. It is for this reason that the 2020 World Bank Global Prospects Report highlights the need for strong regulatory and supervisory regimes, good corporate governance, and improved debt transparency and debt management, among others, at the backdrop of every country’s debt management efforts. These aspects, which are lacking in Zambia, are key in containing the many risks that come with external debt and in identifying vulnerabilities early,” Ngoma added.
He observed that external debt servicing defaults compromised Zambia’s food security position, marginalized the poor and vulnerable.
“The socio-economic distress from Zambia’s debt overhang is abundantly evident. For example, an analysis conducted in 2018 by the Zambia Institute for Policy Analysis and Research (ZIPAR) highlights how detrimental rising debt can be to the economy. In 2018, fiscal authorities spent K6.2 billion as external debt interest payments due to the huge external debt and the resultant increase in debt service obligations. Most notable is that this was 49 per cent or K2.0 billion over-budget. The effect of this was seen when three socially-oriented programmes – Social Benefits (pensions, social cash transfer and so on); strategic food reserve, and water and sanitation experienced a combined 66 per cent (or K2.0 billion) budget cut. The JCTR notes with concern that because external debt service default comes with onerous consequences, the country chose to: 1) compromise its food security position and 2) further marginalize the poor and vulnerable people,” he stated.
And Ngoma reiterated the call on government to minimize on its borrowing, postpone and cancel some pipeline loans.
“It is for this reason that Civil Society Organizations (CSOs), like the JCTR, have for many years made clarion calls for government to rein in on its borrowing. Concerns have been raised in times past and continue to be raised on the weaknesses in Zambia’s debt management framework with an emphasis on the Loans and Guarantees (Authorization) Act, Cap 366. Additionally, year in, year out, Auditor Generals’ reports continue to highlight limited financial discipline in public investment and improper usage of public resources in Zambia. This has resulted in scattered investment, waste, and loss of investment capital. Yes, funds sourced through external debt have helped the country increase its road, rail, and bridge infrastructure, but at a huge cost as resources have been inefficiently invested,” observed Ngoma.
“As JCTR, we are not against Zambia’s borrowing per se. However, for transparency in debt contraction and prudent utilization of debt resources to avert unnecessary debt burden on Zambians, we are of the view that the debt-related stress that the country is now facing signifies an emergent silent social crisis. JCTR urges government to not wait for a full-blown debt crisis to manifest itself through defaults on debt service obligations before prudent decisions are made. It remains imperative that action is taken to slow down external debt contraction, postpone and cancel some pipeline loans. Otherwise, the poor and vulnerable will continue to bear the brunt of our poor public resource management.”