FINANCE Minister Dr Bwalya Ng’andu says the International Monetary Fund (IMF) did not consider Zambia for the COVID-19 relief package because, according to their assessment, the country’s debt position is unsustainable.
And Dr Ng’andu says government has decided to downsize the 2020 national budget because Zambia’s revenue has drastically reduced due to the COVID-19 pandemic.
Meanwhile, Dr Ng’andu says government has identified professional debt advisors.
Speaking when he featured on ZNBC’s Sunday Interview, Dr Ng’andu said the IMF assessment of Zambia’s debt was that it was unsustainable.
“I know we make a lot of issues around the IMF, not just the specific issue of the IMF not responding to our appeal for support in the area of COVID-19 but also general support in the IMF engagement. Now the reason why the IMF package that they’ve put up to support developing countries to deal with the pandemic is that there is one simple rule that they’ve put up and that rule is premised on the issue of debt sustainability. Their assessment is that Zambia’s debt position is unsustainable and this is what has been at the base of our discussions. In response to that, Zambia has been taking a number of steps already. Cabinet last year directed the Ministry of Finance to carry out a number of measures; one was to stop the contraction of all commercial debts and that has happened, the other thing was to examine where it was possible to rescope the various loans that we have,” Dr Ng’andu said.
“For example, you take a loan that is intended to support the building of maybe 50 clinics under the current circumstances, rescope that onto a smaller number, that way you are making a saving. But also, there was a possibility, where possible, with the consent of the lenders to consider cancelling some loans and in this respect, the target where those loans for which there had been no disbursement and we consider those loans for which disbursement has not been done low-hanging fruit because nothing has been disbursed so you can discuss and say, instead of doing this project, let’s forget about it and in future, as the debt situation improves, then we can go and take a second look at that particular project.”
Asked if he was confirming that the country’s debt was unsustainable, Dr Ng’andu responded in the affirmative.
He said government was hoping to cancel some loans which had not yet been disbursed.
“That’s in public domain; everybody knows that; we have admitted that there was an over ambition in terms of borrowing, so many projects that we wanted to do and in the process of doing that, the levels of debt got to a level where it was unsustainable. So what we started off with now, especially if we took the non-disbursed component of the loan, we are thinking of at least USD $3 billion, USD $3.1 billion cancelled, that would help us in the journey towards debt sustainability because one of the things that will do is first and foremost, it will forestall the official conversion of undisbursed loans into disbursements which put more stress on the liquidity of the country. So that’s what we are hoping we could do. And then on the actual loan component itself, the idea was to begin the process of restructuring, talking to the lenders with a view to restructure the loans,” Dr Ng’andu said.
“We have gone in this process by seeking to get professional advisors on loans, in fact there was a process which was completed last week of assessing possible friends that can work with us in terms of helping us to restructure and there are friends, there are companies which have done this and they have contacts within the global environment and they are going to work with us so that we can begin to make a dent in the volume of debt that we have.”
And Dr Ng’andu said the 2020 national budget would be downsized due to revenue constraints.
“We clearly have to make a number of changes in terms of the original budget that I announced last year because the revenue base is no longer the same. I think it’s correct to say the revenue base has substantially reduced. At the same time on the expenditure side, the numbers have gone up and I can explain why that has happened; first it relates to what happened last year. In the last quarter of the year, we found that the southern half of the country suffered drought, as a result of which we had to find resources to meet emergency food supplies. Then coming to the beginning of this year, the northern part of the country suffered just the opposite problem which was floods and floods can be very devastating in their impact; what we found with floods was that even areas which had grown quite substantial crop and were expecting a huge favourable harvest suddenly was destroyed because the crops were flooded with water, we also had bridges being washed away and even human settlement, structures were being washed away. So all this led to an increase in expenditure on our part,” Dr Ng’andu said.
“Then this big one came, COVID-19 and it threw everything out of position. Clearly, you know that the initial response to the COVID-19, because it’s a new thing and it imposes a threat on everything and very often the way that people react when they are faced with a new but threatening situation initially it’s impulsively and we did react impulsively, we took measures which we thought required a response and those measures led to disruption in the way business is done, it led to disruption in the productive sector, but also destroyed the trading routes that we have between ourselves and other countries. So clearly as a result of that also, economic activities essentially came to a standstill to some extent and it’s only now that people are beginning to accept the concept of having to live with this threat.”
He estimated a financing gap of over K20 billion from the original budget once the revision was done.
“We are estimating a large financing gap between K20 billion to K29 billion, those are the estimates, we haven’t finished yet. So we are talking about quite a substantial percentage of GDP. But in terms of the budget, as you know, a budget is arrived at based on a number of assumptions and those assumptions are on the expenditure side and the revenue side and our expenditure side had drastically shrunk. Essentially I think collapse is probably not an unkind word to use, it’s fairly appropriate [because] it’s a bad situation we are in in terms of the revenue side. You spoke about the different sectors; the tourism industry in particular and the hospitality sector in general has been very affected very severely. If you go around town you find not many hotels are in operation. This time of the year is when our tourism thrives; Livingstone is normally busy this time of the year. But if you go to Livingstone there is no activity there. So clearly, we need to rework the budget and we are in the process of doing that. It definitely will be a much smaller budget than the original budget that we announced last year,” said Dr Ng’andu.
“The social sector obviously is one to worry about, especially education, health and also the very vulnerable people in our society; people who live off the Social Cash Transfer (SCT) and probably food packs, those could suffer. But fortunately for us, we are getting quite a good response and support from the international community to do specifically in the area of meeting the needs of the vulnerable. So we will be calling on and we are involving a number of bilateral partners to support us in the social sector.”