(By Ernest Chanda and Edwin Mbulo)
The Economist Intelligence Unit (EIU) has forecast increased government spending from this year to 2020 mainly due to over borrowing. And the EIU has predicted more political tension within the ruling Patriotic Front by 2020 such that it will strengthen the opposition National Democratic Congress (NDC).
Meanwhile, the EIU has observed that the mistrust between President Edgar Lungu and UPND leader Hakainde Hichilema is unlikely to heal ahead of the 2021 elections. The report further notes that the UPND has become timid due to excessive state harassment of its key leadership.
According to the latest report on Zambia released February 6, the EIU predicts that NDC would split votes in favour of the United Party for National Development (UPND). The EIU projected an unstable fiscal policy where spending would take up a huge chunk of the country’s gross domestic product (GDP). The report expects that the country would finally get economic support from the International Monetary Fund.
“Although fiscal policy will notionally tilt towards consolidation over the longer term, official projections have spending as a proportion of GDP increasing in 2018 over the estimated 2017 out-turn. Most of the increase is centered on core recurrent spending and costly debt servicing. There is also a stock of arrears to the private sector that needs clearing. With the government postponing necessary spending cuts in 2018, our assumption is that outlays will edge down as a proportion of GDP in 2019-20,”
the EIU stated.
“An expected loan agreement with the IMF, struck once fiscal policy tightens, will also introduce external oversight and help to limit policy slippages in these years. With an election due in 2021, there will be a partial abandonment of the consolidation agenda, with spending set to increase as a proportion of GDP that year, before falling back again in 2022 once election pressures subside. On the revenue side, stronger copper prices will mean the revenue/GDP ratio increases in 2018-20. By 2019 the IMF will also have oversight of budget planning, and so we expect the increasing revenue/GDP ratio to be supported by wider tax reforms. The ratio will then dip in 2021 on the back of an expected election-related tax cut that year, and recover in 2022 as compensatory revenue-raising measures are brought in again to try to rebalance the government account. Overall, on the back of high spending, we forecast that the deficit will remain wide at seven per cent of GDP in 2018. As consolidation efforts take effect, the shortfall will steadily narrow to 2.8 per cent of GDP in 2020. An election-related uptick in spending will cause the shortfall to widen to 4.5 per cent of GDP in 2021, but corrective measures will narrow it again, to 1.8 per cent of GDP, in 2022. Regarding finance, domestic borrowing will be emphasised in the short term, but as this policy crowds out private-sector activity there will be a renewed emphasis on external borrowing later in the forecast period.”
It predicted more political tension within the ruling PF such that to a large extent, it would benefit the opposition. The EIU, however, maintained its earlier prediction towards the end of last year that President Lungu would still win the election if allowed to stand in 2021 due to sustained intimidation of his main challenger, the UPND’s Hichilema.
“The next presidential and legislative elections are due in August 2021. Assuming Mr Lungu is deemed eligible to stand again, the PF will be streamlined to fit around his ambitions for another term ahead of the 2020 nominations, whereby influential (and usually old-guard) competitors will be expelled or opt to leave. But this will come at a cost as all PF politicians that have left his administration, either on their own volition or after being fired, have done so while exposing official mismanagement. This is no coincidence given that corruption is a deep-seated public concern – and for good reason – citing it is a means by which ambitious politicians can begin afresh, in opposition, with a powerful campaigning message at their disposal,”
the report stated.
“As the PF shake-up continues, there will probably be similar allegations and the associated bad press stands to cause damage at the polls. Standing to gain from all this is the National Democratic Congress – a new party founded by Chishimba Kambwili, an ex-PF minister expelled by Mr Lungu in mid 2017 – which is already making inroads within the ruling party’s Copperbelt heartland on an anti-corruption platform. If key PF members switch over to this new force, it would split votes to the ultimate benefit of the UPND, which is less involved in the region.”
It further predicted a deep mistrust between UPND leader Hichilema and President Lungu, despite dialogue currently being spearheaded by the Commonwealth.
“Zambia will face substantial threats to political stability in 2018-22. Much of this stems from what is for Zambia an unusual degree of social division and political intolerance under the presidency of Edgar Lungu. Amid widespread perceptions of worsening corruption and concerns that Zambia is descending into authoritarianism, tensions with the opposition will be acute. In particular, a deep-seated mistrust between Mr Lungu, and the leader of the opposition United Party for National Development (UPND) is unlikely to heal, despite ‘peace talks’ brokered by the Commonwealth, a multilateral organisation, given the absence of any common ground over the validity of the 2016 election – the key sticking point. Over the longer run, there are several potential flashpoints where this animosity stands to spark serious turbulence,”
the EIU stated.
“For example, serious unrest is likely to break out when the Supreme Court delivers a verdict on whether Mr Lungu should be eligible to stand for another term in office in a 2021 general election; the announcement date is unspecified. If another term is deemed unconstitutional, Mr Lungu has himself publicly warned of chaos. Likewise, this clear politicisation of the legal process implies that a ruling declaring him able to stand again will now be viewed as tainted by the opposition, who already reject the idea of him having another term. If the ruling goes against Mr Lungu, disturbances could be severe enough to prompt political crisis – this is now a real downside risk – but as the president appoints Supreme Court judges, such a verdict is unlikely. Any related unrest is likely to be in the form of opposition protests, potentially involving low-level violence.”
With regard to political violence, the EIU predicted that President Lungu would still narrow the political space against the opposition just as he did in 2016.
The report stated that while the government would think such an act would bring stability, it would instead create instability and keep policy unpredictable.
“The 2021 election will be another volatile period during which the government will look to aggressively narrow the political space. If disorder becomes widespread, as is likely, we expect extra security powers to come into force, as they did for three months in 2017. On the one hand, this would act as a mechanism for bolstering overall stability; on the other it would reinforce perceptions that Zambia is staggering into autocracy and deepen underlying social tensions,” stated the EIU. “Besides relations with the opposition, intra-governmental divisions will keep policy unpredictable, with a vocal conservative faction of the ruling Patriotic Front (PF) having long been sceptical of the President and his choice of cabinet. Key ministers have already been fired or resigned amid whistleblowing about corruption or mismanagement in government. To cement his position, Mr Lungu is likely to continue purging this faction, which will prove a distraction to the functioning of government while it lasts, but later on it should help to avoid internal instability – for example, in the run-up to the 2020 PF presidential nomination process.”
Meanwhile, the EIU observed that the UPND had become timid due to constant state harassment of its key leadership.
“…the UPND has become relatively timid since fierce crackdowns on its members and leadership in 2017, and now seems without the direction needed to fully exploit such a scenario. Therefore as things stand, The Economist Intelligence Unit retains its forecast for a Lungu victory in 2021, although this prognosis is at increasing risk,” stated the EIU.