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Dipak’s free advice: Hidden debt is toxicBy Diggers Editor on 10 May 2019
We have written on the collapse of the economy of several occasions, but those who hold economic degrees in the PF government say we have no right to give an analysis on things that we “don’t understand”. So today we went to dig out the former Minister of Commerce, Trade and Industry to use this platform and offer not only criticism, but some solutions as well.
Let’s hear it from Dipak Patel!
It’s an honest duty to reflect on times we live. There is a serious trust deficit on part of the government in Zambia today. Bluff and bluster are fine for the hustings, but it evaporates in the face of reality. The economy is almost certainly headed towards a very serious crisis. The note left by the IMF team that just left the country said as much, in their own careful language. The government deficit projected at 10 per cent of our GDP this year is simply unreasonable. The build-up of huge unsustainable domestic arrears noted by the IMF team, the failure to pay civil service salaries on time, and the reported raiding of NAPSA coffers to pay bills are clear evidence that we are about to face the hardest times seen in decades.
Part of the problem stems from the mountain of foreign debt that the government has contracted in recent years. Borrowing abroad is fine if it is used productively and leads to higher growth and creates the capacity to repay lenders without leaving us immiserated. But that isn’t what happened. Just look around and you’ll see that the money hasn’t been put to productive use. Instead we are left scrambling to find a way to pay loans back. The other government problems are reckless spending on luxury, e.g. the new presidential jet and uneconomic developmental projects.
The government has had to draw down central bank foreign exchange reserves to make debt service payments. The IMF team pointed out that Bank of Zambia (BoZ) foreign exchange reserves had fallen to about half of what they should be. The BoZ is doing its best to stabilize the exchange rate, but the depreciation that we have seen in the value of the kwacha is just the beginning. If the government doesn’t find someone to lend enough dollars to help cover the debt falling due or, somehow, convince lenders to reschedule debt service payments falling due, the economy will race into crisis in the not too distant future – the kwacha will plummet, inflation will surge, the cost of fuel and other imported goods will make the current way of life unaffordable for most of us, civil service salaries won’t be enough to cover the cost of living, and employment in the private sector will contract. We have been there before, and were promised that it wouldn’t happen again.
The Government criticized Africa Confidential and Bloomberg for their reporting on the economy, saying “… you are actually trying to incite the markets to be nervous about the Zambian economy and therefore ultimately what you hope to achieve is to strangulate the economy by stopping Foreign Direct Investment.” This is nonsense and an illiterate comment. “When a throne sits on mud, observed philosopher Friedrich Nietze, mud sits on the throne” Investors hate uncertainty. If they understand a situation and its risks, they have the information they need to invest. By keeping us in the dark, the Government is stoking a crisis, not preventing it. There is a paralysis of analysis and transparency. Government owes millions of dollars for VAT refunds to the mines, Zamefa, Zambia Sugar, Chilanga Cement and many others, and what’s the government’s solution? Introduce a Sales Tax legislation! There is nothing wrong with the current VAT system, what is wrong is that the government is misusing the money that is meant for refunds. They say, if it isn’t broken, don’t fix it!
The Government should make the data on public debt and debt service schedules public now. If everything is in order, this information will be welcomed by the financial markets. If the debt is the major problem that evidence seems to be indicating, we have a right to know.
The Constitution says, “the State shall respect the rights and dignity of the human family, uphold the laws of the State and conduct the affairs of the State in such manner as to preserve, develop, and utilize its resources for this and future generations.” It also pledges, “…to uphold the values of democracy, transparency, accountability and good governance.” In calling for the release of this information, we are simply asking that Government uphold its constitutional duties.
It is likely that the Government will issue some empty argument that everything is okay, and denounce this article. You don’t have to take either the Government or this article at its word. You should judge with your own eyes. Watch what happens to the prices that you have to pay for food and fuel. Keep your eyes on the news that civil service salaries and government contractors aren’t being paid on-time, and on the continued raiding of resources like NAPSA and IDC. Watch what happens in the foreign exchange market. You will see which story is correct.
We should not be complacent about this. If we wait until the economy is in further crisis to act, our losses will be greater, the choices available will be fewer, and the path to normalization will be much more difficult. In short, there will be too much suffering. This is too high a price to pay, just to mask the economic situation for a few more months. It’s high time for government to bite the bullet.
So, how should we deal with the mess in which we find ourselves? First, the government must come clean. It must admit that the current path is unsustainable and agree that they need to take steps to avert the crisis. It is simply not good enough to say repeatedly, that “we will put measures in place”. What measures? If they do not do this and when the crunch crisis arrives, they must be held accountable for the suffering that they will have caused. A government that fails its nation in such a way is not fit to hold office.
Second, the suffering that people have to endure has to be minimized. The Government has to work with lenders and trusted international partners to work out a plan that avoids crisis. If done well, this will include debt rescheduling and, likely, some additional lending to smooth the transition to sustainable policies. It will probably also require that the exchange rate will have to fall further and that government spending will need to be drastically cut back. This will be painful, but it can be done without the disorder, chaos, mistakes and suffering that would result from a crisis. It also has to be done in a way that creates opportunities and encouragement for the average Zambian to become more productive. So that we and future generations can lead happier lives and our country can thrive.
This is about our future. It is our right to know the truth and our duty to see that the people of Zambia are served. We desperately need a new era of responsibility.
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