ECONOMIST Chibamba Kanyama says the slow rate at which Zambia’s GDP is growing will make it difficult to attain the middle income country status by 2030.
Meanwhile, Kanyama has attributed the destabilisation of the Kwacha to the fact the Zambia has been defaulting on its Eurobonds.
In an interview, Friday, Kanyama said as it stood, population growth was almost the same as GDP growth, making it very difficult for Zambia to attain the middle income country status.
“For the country to really qualify for the middle income status, there are a number of variables that are considered. One, it looks at its export capacity where the net export should be consistent and positive over a period of time. Two, the GDP growth rate should be at a certain minimum for those that have low GDP. So Zambia’s GDP is very low and the way you look at GDP, for example when you say US$27 billion per year, that is the total wealth that was created in a given year and then you look at the population of the country about 18 million, that gives you per capita incomes of less than US$2,000,” he said.
“Now, the goal of every government is to increase per capita income and you are going to look at how much wealth are you creating in the country per year, relative to the growth in population. But that growth, that’s where it matters now. The growth must be sustained, and must be higher than the growth in the population. Now to impact that growth, you want to look at a number of issues because you cannot just create growth from nowhere. Growth is created by the economic agents, the private sector in particular who must contribute to the GDP.”
He noted that high levels of debt had affected participation of the private sector, which in turn had impacted the country’s economy.
“So in the Zambian situation, the high debt levels have over the past few years, since 2015 affected the participation and effective impact of the private sector in the Zambian economy. Why? It is because when you have high external debt serving which is more or less about 45 percent in interest per year, the corresponding impact is on the government deficit. There is a huge gap because when you are doing debt servicing, the government still has to meet its domestic obligations. It has to continue supplying medicines, it has to pay salaries and emoluments, it has to embark on infrastructure development, water, energy, social amenities and you cannot meet them because much of the money goes to debt servicing. So the government has to fill that gap between the revenues and the expenditure. That gap is negative, in other words, the government has found itself in a position where it is spending more than it is collecting,” he said.
“Now when you are experiencing a deficit, you have to find other sources of money. Number one, you have to look at the bilateral partners, countries to support your budget but as you know, the past 10 years there has hardly been budget support to Zambia, no budget support, very little. Why? It’s because most of these countries say Zambia lacks accountability, lacks transparency and they are also worried about overall management of the economy. So we have not had that kind of money. The money you are seeing from donors is where you have organizations who are directly involved in poverty alleviation programs but without the government seeing the money. So that is not budget support at all.”
And Kanyama said Zambia would continue to borrow if debt was not restructured.
“Government has to find another alternative to borrow and again it has to borrow from the domestic market hence you see the treasury bills they are always issuing, government securities to fill the deficit. That action clouds out the private sector and this is where the impact is. We have hardly seen extension credit in Zambia, companies are not lending to the private sector, where are they taking the money, to lend the government to fill the deficit. That money should have ordinarily been channeled to the private sector to grow the economy and then grow the GDP as a consequence and when you grow the GDP, then you begin to see yourself qualifying towards another status as a country which is proving difficult now,” said Kanyama.
“With these debt levels, as long as we do not restructure it and have some space, we will continue to borrow and we will continue to have a high fiscal deficit impacting on the growth of the private sector and therefore economic growth will continue to be subdued. Growing at less than three percent is not good enough compared to when you look at the relative growth in the population. We need to have at least seven percent growth rate. Right now the growth in the population is almost the same as growth in the GDP which makes it very difficult for us to attain the status by 2030.”
Meanwhile, Kanyama said defaulting on Eurobonds was contributing to the destabilisation of the Kwacha.
“I want government to stand on this one, to stick on this one, stand on the budget, understand that we have now got IMF coming, understand that we have got creditors who there we have defaulted on them. And the reason we are breathing now is because we have been defaulting. If we have not been defaulting things would have been worse. By the way it is because the creditors and even investors are knowledgeable, they know that we have been defaulting on the Eurobond and other debt they are not bringing in as much they should be on other investments because they do not know at what point government now will go into the market to get the dollars to pay the interest rate we have been defaulting on. So they are aware about that information that is why you see the exchange rate is not stabilized. They are aware, they are fully aware that we have been defaulting and they know also that it is a matter of time before we can go to the bureaus to get dollars to pay all the interest rate, all the coupons we have been defaulting on,” said Kanyama.