ECONOMIST Chibamba Kanyama says Zambia faces a difficult choice of making the hard call to suspend ongoing projects to accommodate the problems brought about by COVID-19.
And Chibamba says the International Monetary Fund (IMF) should consider Zambia as a less active member state and that dedicating a full time resource in the name of Resident Representative may be expensive.
On Monday, IMF said Zambia faced difficult policy choices to respond to the COVID-19 pandemic as the country required additional interventions in the health sector while trying to restore debt sustainability.
In an interview, Kanyama said the government still faced pressure to honour contractual obligations with mostly Chinese firms contracted to work on roads.
“The difficult choice Zambia is facing is making the hard call to suspend ongoing projects to accommodate the problems brought about by COVID-19. Where as a decision was made last year to suspend projects that are below a defined threshold to completion, government still faces pressure to honour contractual obligations with mostly Chinese firms contracted to work on roads. As long as project site mobilization has taken place, the contracted companies still demand to be compensated for these suspended projects. This is a tough choice on the part of government, especially given the current circumstances,” Kanyama said.
He said the budget was so constrained that without additional exogenous income from new creditors and grants, the government would not recover the economy in the medium term.
“By difficult policy choices, the IMF is most likely referring to budget; the 2020 budget that was approved by Parliament last year and now in operation is a policy document that is already constrained even before the challenges of COVID-19 kick in. Barely about 10 per cent of the budget is available for discretionary spending by government and that includes support towards the health sector. A policy choice has to be made by government about how to expand the budget so as to meet the challenges posed by the Coronavirus,” Kanyama said. “In other words, the budget is so constrained that without additional exogenous income from new creditors and grants, the government will not be able to recover the economy in the medium term. As you may have observed, governments with stronger reserves or means to raise additional income through tax revenue have been able to tweak the national budgets to support businesses that are mostly hit by the partial lockdown of the economy. Outside the Bank of Zambia pledge to release K10 billion worth of concessional loans to businesses, there is not much the government can do at the moment to fight back the dire straits we are in.”
He said Dr Ng’andu’s last address showed just how limited Zambia’s policy options were.
“During the last address by the Minister of Finance, it became clear about how limited policy choices are before us: the economy to shrink by more than two per cent which in itself means possible loss of jobs, constrained supply of goods and services which should lead to high inflationary pressures, reduced tax declarations to government by private sector agents and we already know government is losing about K14 billion worth of tax revenue,” Kanyama said. “In addition, government is unable to access emergency funds from bilateral lenders because the country is classified as middle income, something I consider unrealistic and deceptive by rating agencies. When you consider how constrained the budget is to respond to emergencies like we are experiencing now, you understand why the IMF is saying Zambia is facing difficult policy choices,” Chibamba said.
He wondered how a country with huge debt repayments would successfully protect the economy from the havoc caused by COVID-19.
“In short, in the 2020 budget, Finance Minister Dr. Bwalya Ng’andu planned to raise K71.9 billion from domestic revenue and spend K33.7 billion on debt service (K21.1 billion on external debt and K12.6 billion on domestic debt). Therefore, our debt service-to-revenue ratio was projected to be 46.9 per cent when the budget was unveiled in September 2019. And face value debt-to-GDP ratio is way above 40 per cent threshold. The nominal value debt-to-GDP is higher than the 60 per cent threshold given that even the face value is way above the same ratio,” Kanyama said. “This surely is of concern to technocrats at the Ministry of Finance, that we are in the face of a crisis and this does not help matters in according government with capacity to manoeuvre. How does a country with such huge debt repayments successfully insulate its economy from the havoc caused by COVID-19?”
He further said Zambia needed an IMF resident representative only when the country got into an economic programme.
“On the issue of a replacement for Alfredo Baldini, I would rather not speculate on this issue. That factor is even beyond what the Zambian government can do even though the Minister can easily put pressure to have a replacement. But for the minister to successfully do so, he must need that replacement. Without a program in place, I suspect the government is content dealing directly with the Washington DC based Mission Chief for Zambia. As things stand, that is how government has been relating with the IMF since the recall of Baldini. However, when Zambia gets on an economic programme, the government will definitely need the resident representative to help with the day to day data reconciliations..,” said Kanyama.
“It is through the resident representative that the Ministry of Finance is able to develop capacity and efficiency in data reconciliation that is critical for Article IV consultations as well as economic programme execution. Even on the part of the IMF, it is my view they consider Zambia as a less active member state and dedicating a full time resource in the name of Resident Representative may be expensive. However, I foresee a situation where the Fund will not want to have the office manned by local staff and may reconsider its position in due course.”