We will talk more about the government’s failure to settle a loan that has attracted sanctions from the Africa Development Bank next week but today, we would like to look at how we got here.
No one in this PF government has ever been willing to admit that Zambia is in a debt crisis. They have found all sorts of fancy names for it, but not a crisis. The President, the Minister of Finance, the Chief Government Spokesperson, as well as the Patriotic Front leadership is being economical with the truth on this matter.
Let’s face it, this debt distress has been long coming. What are the indicators of that? More than 30 per cent of government revenue has been going towards debt servicing and it is common knowledge that emoluments for Zambia’s civil service account for about 65 per cent of the country’s earnings. The 30 per cent has been taken away from project investments; the 30 percent has been taken away from spending on social needs of the country; the 30 per cent has been eating into the reserves. That is the truth.
We have completely depleted our reserves. This is the lowest we have gotten to in many years and the creditors in Europe had been warning us as a country that we were getting into a junk bond, but government did not do anything drastic.
It is not out of jealousy that the owners of the Eurobond have been apprehensive about China. They gave government a strong caution, they want Zambia to go the IMF route because they feel that is the only cure right now for the country to come back from its potential disaster.
But we know that the government of President Edgar Lungu has not been happy with the IMF for two reasons; number one, they were looking at how much money IMF would give them. Of course we agree with them that the money is small compared to the problems they created in the economy, but they know as much as we do that an IMF bailout package secures investor confidence and improves the credit rating of the borrower. Secondly, they never want IMF help because they knew that they don’t have the fiscal discipline to implement resource accountability. They don’t want anyone having a say on how they are spending and stealing from the Treasury through unproductive expenditure.
However, that is the only insurance that the current bondholders have. They know that once IMF comes in, there will be management of fiscal affairs, the deficit is going to reduce and the government will be spending less.
In Zambia’s case, the reserves were already determined in terms of application because they went towards debt servicing, so in the true sense of Emergency Funds, we did not have reserves at all. Since some foreign investors in the government securities were not rolling over the investment, the kwacha began to feel the pressure, and it should not surprise anyone that it is now trading around K14 to a dollar.
How did China contribute to our current situation? The problem with the Chinese model is that China actually takes away the foreign reserves. It was not bringing any cash into Zambia. So as we paid them cash for the infrastructure loans they were bringing, they actually started getting our dollars back to China. This government and everyone in it who is defending Chinese loans know that China has just been bringing equipment and not cash. They know that China could never give balance of payments support. It could never give us import cover. That is why the refinancing initiatives of government have not worked.
Today, lending institutions are beginning to knock on our Treasury, demanding their dues. In our layman’s understanding, this is what debt distress is. UNZA lecturers are on go-slow because government is failing to pay its support obligation to the institution, civil servants are getting salaries late, contractors are not getting their money, foreign missions are not getting funding.
Let’s just admit, ifintu nafilungula!