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Zambia’s economy in a more precarious position than most realise, warns ZIPAR

THE Zambian economy is still in a precarious position more than most

people realise, reveals ZIPAR.
And ZIPAR is alarmed by the increasing amount of money Zambia is
spending on debt servicing and arrears payments to the detriment of
tackling poverty or supporting economic growth.
Zambia Institute for Policy Analysis and Research (ZIPAR), a local
think-tank, is currently advocating for the country to get on an
economic recovery programme supported by the International Monetary
Fund whose team was in the country negotiating with the
government for an aid package with an interest-free loan
estimated at US $1.3 billion.
Despite support from finance minister Felix Mutati and Bank of Zambia
governor Dr Denny Kalyalya, President Edgar Lungu is reluctant to
allow the country to get on an IMF programme which would come with
genuine demands for commitment on the part of the government to
contain its high expenditure and improve revenue collection.
Mutati announced that Zambia would pursue the ‘Zambia Plus’ programme, an
economic recovery route in which the government wanted to lead the way
to contain its excessive spending and consolidate revenue collections while seeking support from foreign players, who included lenders and donors as secondary back-up.
But ZIPAR stated that there was need for the country to get on an IMF
programme to help the economy come out of its current doldrums.
“The Zambian economy is still in a precarious position more than most
people realize. For a small, open economy [like] Zambia, a decline in
real Gross Domestic Product growth from a long-term average of about
seven per cent to 2.9 per cent in 2015 is dangerously close to a
recession if not a full-blown recession,” according to ZIPAR. “After
all, a recession is simply a significant reduction in economic
activity across the economy lasting for more than a few months,
evidenced by real Gross Domestic Product or other measures of economic
activity. The preliminary GDP outturn for 2016, though an improvement,
is also still very low. Moreover, Zambia’s persistent and deep budget
deficits have eventually led to overall government debt levels that
are now feared to be well above the sustainable threshold. Because of
this, in 2017, the government has allocated about K15 billion, almost a
quarter of the national budget, to debt servicing and arrears payments.
These monies could have gone to tackling poverty or supporting
economic growth. Without a credible Zambia Plus, these issues will
continue to haunt our present generation and the next.”
It observed that the poor and marginalized Zambians would be most
bruised by the current economic woes in the country.
“The consequences of inaction on Zambia Plus and the IMF deal would be
far worse than the reality of acknowledging and addressing economic
recovery with support from an IMF-aid package,” ZIPAR explained.
“Analysis of the implementation of the 2015 budget reveals that when
the economic downturn set in, the most significant under-spends or
budget cuts were on social cash transfers, the economic empowerment
fund and the public service pension fund. We essentially failed to
protect the poor and vulnerable during the 2015 downturn. So, the
absence of Zambia Plus will do bigger and longer lasting damage to the
lives of poor Zambians than will the few challenges of the programme.”
It stated that an IMF loan would go a long way in alleviating
Zambia’s external payments position and allow the government
to focus on structural and domestic issues that could unlock growth,
create jobs and reduce poverty.
“Under an IMF-supported programme, the country will be eligible to an
interest-free loan of up to US $1.3 billion. This would be enough to
cover all of Zambia’s external debt service obligations for 2017 and
2018, offering fiscal space to the government to dedicate the freed
domestic resources to social protection, key infrastructure and growth
interventions,” ZIPAR stated. “Without an externally supported programme,
Zambia will fail to finance the full breadth of its medium-term
development agenda.”
it stated that there was need to address downside risks and
challenges that came with the planned economic recovery programme
which put the situation of the poor in more precarious position.
“Here are the two that we think are crucial: firstly, the government
must publicise and popularise Zambia Plus, urgently finalising the
programme document and sharing it with the public to build awareness
and citizen ownership,” it stated. “It must ensure that the programme
incorporates in-built mechanisms for eliciting social and political
will. The public and politicians should be dissuaded from exerting
undue pressure or unfounded fears over the establishment of Zambia
Plus and IMF support, and over the realisation of the economic recovery.”
ZIPAR stated that the government must ensure that Zambia Plus was
underpinned by a new and more stringent set of fiscal rules that
reduced the risks of financial mismanagement.
“The fiscal slippages that Zambia experienced in 2011-2016 should not
be allowed to happen again,” it stated. “As we hold fast to ‘Zambia
Plus’ and strive to implement a credible programme, the government
will do well to establish binding fiscal rules that legally hold the
Minister of Finance or his Ministry to some form of numerical limits
under the scrutiny of Parliament.”
ZIPAR stated there was no need to fear an IMF programme.
“…recent indications were that an IMF Mission would be back in town
this month [March]. This has raised rumors that the Mission aims to
seal an IMF deal with the government,” stated ZIPAR. “These prospects
of an IMF deal, seen in some quarters as sleeping with the enemy yet
again, have caused night-sweats and anxiety for many…”

The IMF team has since left the country after failing yet again to agree on the aid package as approval from President Lungu had proved difficult, with hopes of concluding the negotiations pinned on next month’s World Bank/IMF spring meetings in Washington D.C which would be attended by Mutati and Dr Kalyalya.

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