ECONOMIST Professor Oliver Saasa says the International Monetary Fund (IMF) negotiations collapsed without any commitment and that continued engagement will depend on the Zambian government’s actions and policies in the revision of the 2020 budget.
And Prof Saasa says the fact that Zambia has opted to restructure its debt means it has technically defaulted, making it difficult for the country to source financing to cover the K26.9 billion financing gap in the 2020 budget.
In an interview, Prof Saasa observed that the IMF’s statement released, Wednesday, revealed that the Fund had “not moved an inch” in bringing hope towards the conclusion of an agreeable, much-needed economic programme with Zambia.
“The IMF statement suggests that the negotiations did end up without any IMF commitment (a polite way of meaning that the discussions collapsed and that continued engagement will depend on government actions and policies that are yet to be defined as they relate to the revision of the 2020 budget and the medium-term fiscal stance. In the IMF’s own words: ‘Discussions will continue as the authorities (i.e. GRZ) determine their policies and priorities in the formulation of the revised 2020 budget, as well as the medium-term fiscal stance needed to restore debt sustainability, revive growth and lower poverty.’ To the extent that these policies and stances are yet to be known, it would seem as if the IMF has not moved an inch in bringing hope towards the conclusion of an agreeable programme with Zambia,” Prof Saasa observed.
And Prof Saasa said a reduction in revenue generation was expected to be sustained due to low productivity in the economy.
Zambia’s budget deficit has leaped to K17.2 billion from K14.8 billion announced in April, induced by a reduction in economic activity, according to the Ministry of Finance.
“…Now, because of that, then it means the shortfall will keep on increasing to the extent that the tax revenue is dwindling and productivity, output on the average has come down. Whether you are talking about those in production, those processing, but also in services. So, services you can think of transportation, movement has actually been curtailed significantly. You’ve seen services like banking, yes, it’s still there, but you’ve seen hotels, a number of them, especially the major ones have closed down; the likes of Intercontinental and Pamodzi, because tourists are not coming in. Flights, I mean, the air travel business, tourism, generally, it has been significantly affected. So, tourism was contributing quite significantly to the Treasury and these are the sectors that are not the major shortfalls. If anything, government, now, has to find money, what we call stimulus packages, to give to the industry that were supposed to be giving us money, as government, but now, we are giving them money so that they do not collapse completely to a level where post-COVID-19, when things calm down, we hope it will be sooner than later, they will continue starting generating and paying tax,” he said.
“It may mean a number of things; firstly, of course, this was expected and the revenue generation as seen, there is a shortfall. So, you know what you expect from ZRA. ZRA, for a number of years, they would dictate that they’ve gone beyond their targets, but those targets were only sustainable to the extent that companies were paying tax and that tax collection was enhanced. Now, we are having two challenges: firstly, tax revenue comes down as a result of many companies struggling at the moment because of COVID-19 and there are other things, other parts; for some tax payers, like the mines, there was a tax regime that was introduced in 2019 that still has brought in some major challenges between government and the miners. But of course, in the mining sector, which I am talking about, really, the major tax payers, we have challenges with KCM as you are aware, and of course, also with Mopani. So, even if the price of copper increases, we may not be able to cash in on a good price because output has slackened. So, when you combine that with the stressed economy as a result of the pandemic, you would understand that ZRA would not be able to cash in what they anticipated. So, essentially, on the revenue side, we have those challenges that are affecting our revenue base.”
He added that government’s decision to embark on debt restructuring indicated that Zambia had technically defaulted on its sovereign debt.
“The debt situation, as the Honourable Minister of Finance (Dr Bwalya Ng’andu) did indicate, it means that, actually, our credit levels, investors may not be very enthusiastic in coming here, with the COVID-19. That you may not be able to go to capital markets, for example, to borrow because you pay through your nose! In fact, that is not an option, we can’t go for another Eurobond, that’s not an option and even the IMF will not actually encourage that. At the moment, we are actually restructuring the debt, meaning that we have, for all intents and purpose, when you restructure the debt; it’s exactly as good as defaulting. It is actually defaulting and for the purpose of rating agencies, immediately you announce that you are restructuring, it means you have defaulted already as a default. So, we have technically defaulted and we are renegotiating to pay later. So, for the purpose of classification, our rating status would actually be affected as a default country. Because of that, it’s not easy to get money from the capital market, even from ordinary markets,” said Prof Saasa.