On Thursday, July 16, 2020, CUTS brought together different stakeholders from various sectors including civil society, government, private sector, academia and the media to discuss solutions to Zambia’s debt situation. Public debt is still a major economic challenge for Zambia and thereby, there is need to sustain dialogue on potential solutions. The meeting which took the form of a webinar attracted over a 100 participants from Zambia and internationally to discuss our debt position. CUTS is concerned about the impact debt has on consumers which include increased inflation, less investment in public services used by low income consumers, the crowding out effect on the private sector which affects consumption and all this generally has an impact on economic growth and efforts to reduce poverty in the country.

The meeting had a panel of experts from Civil Society Organisations and Private sector to share how debt affects these sectors. Mr Isaac Mwaipopo, Centre for Trade Policy and Development, Executive Director shared that the increase in borrowing stemmed from the need for the Government to invest in infrastructure development, however, the lack of an efficient procurement system was one of the reasons Zambia found itself suffering from unsustainable debt. He added that the outbreak of the Covid-19 pandemic had now worsened Zambia’s debt situation thereby also limiting the country’s capacity to respond to the disease.

In looking towards finding solutions he encouraged the government to continue to engage the International Monetary Fund. He noted that there was a need to ensure parliamentary oversight over debt contraction to enhance transparency and there it was also important for the Government to scale down infrastructure projects and focus only the ones with high economic returns. He concluded by welcoming the move by the Ministry of Finance to reprioritize investment projects and dismantle domestic debt to improve liquidity in the local economy.

Views by the private sector were shared by Ms Florence Muleya, Zambia Association of Manufacturers, Chief Executive Officer. She noted that as the Government had increased its domestic debt, there was less money available for the private sector to borrowing and this was worsening over the years. Ms Muleya noted that the stimulus package through that the government had made available through commercial banks was unlikely to achieve its intended results as commercial banks would likely charge higher interest rates as opposed to if the money had been made available through the Development Bank of Zambia.

CUTS Lusaka also engaged the International Monetary Fund to understand how the fund can help Zambia’s high risk of debt distress. Dhaneswar Ghura, International Monetary Fund, Mission Chief indicated that solutions to public debt needed to be discussed in the broader context including the Covid-19 pandemic which has unleashed an economic crisis globally. Also, disruptions to trade had affected key sectors such as the mining sector and that tourism had come to a halt in all tourist-based economies, including Zambia. As such, estimates show that the economy will contract by 5% this year. Additionally, the drought experienced in the country had a major ripple affect impacting agriculture and slowing growth and this year it was expected to be worse. Food security therefore would be an issue and the pandemic was going to exacerbate the attainment of Zambia’s long term development goals such as eradicating poverty, malnutrition and ensuring food security.

Mr Ghura noted that there was a need to increase public spending in health and scale up social nets especially because Zambia has a strong social safety net system. He encouraged the Government to supplement its tax relief measures by dismantling some of its debt to continue to support the private sector. He finally mentioned that the Government had been investing in infrastructure but most loans had been on non-concessional terms which are expensive. Fiscal policy would therefore not be enough to deal with the debt situation hence the Government has hired debt advisors to help with a debt restructure plan. He noted that the key goals needed to be: revive growth, generate jobs and lower poverty and that IMF planned to support the Government to achieve this.

Finally, CUTS engaged Mukuli Chikuba, Ministry of Finance, Permanent Secretary who indicated that the relationship between civil society and Government is important. He gave some key actions that the Ministry of Finance is undertaking to reduce debt. Mr. Chikuba noted that in the short and medium term there was a need to ensure fiscal balancing to allow for more expenditure rationalization (fiscal consolidation). In the medium to long term, he indicated that there were efforts towards rescoping public spending and reprioritize public expenditure. He also noted that social sector spending would be the focus for Government in long term. He further indicated that creating space for private sector is a goal of Government and therefore they will reduce borrowing, get the rates down and lengthen maturities.

The multi-stakeholder meeting helped show the road map towards dealing with Zambia’s high debt in the short, long and medium term. CUTS Lusaka will continue to engage key stakeholders on the need to reduce Zambia’s debt. It is clear that there is political will to do so and also support from the international community. Bold action is required to implement the Government’s plans to reduce debt and keep the economy growing especially during the Covid 19 era.

For further information, please contact The Centre Coordinator, Consumer Unity and Trust Society, House No. 406, Kudu Road, Kabulonga (lusaka@cuts.org)