THE World Bank says Zambia’s external debt may hit distress levels by 2019.
According to the 11th Edition of the Zambia Economic Brief dated September 2018 and titled An Agro-Led Structural Transformation, under the sub title The state of The Zambian Economy released by the World Bank, the rate of unemployment among women was higher compared to men.
“The government’s debt sustainability analysis (DSA) in H1 2018 confirmed the conclusion of a joint IMF-World DSA (published in October 2017) that Zambia is at ‘high’ risk of external debt distress. Under the ‘business as usual scenario’, the IMF-World DSA found that the present value (PV) of external debt-to-GDP (gross domestic product) ratio would breach its threshold ‘for high risk of external debt distress’ (40 per cent) in 2019, if external public and publicly guaranteed debt stock increased from US$7.9 billion in 2016 to US$8.4 billion in 2017, US$10.2 billion in 2018 and US$11.4 billion in 2019,” the report states.
“Yet, external public and publicly guaranteed debt accumulated faster, reaching US$9.5 billion at end-2017, and US$10.7 billion at mid-2018. Meanwhile, high domestic public borrowing at high yields continues to place upward pressure on lending rates and to crowd-out private sector lending. This could be worsened if new public expenditure arrears are accumulated in 2018.”
The report adds that Value Added Tax collections had been outweighed by the cost of foreign loans financed by the government.
“Over H1 2018, the fiscal deficit (commitment basis) was 1.4 times above its mid-year target as revenue gains from value added tax have been outweighed by large spending overruns on foreign financed public investments and external debt service. The government announced plans for fiscal consolidation after results from their DSA confirmed that Zambia is at ‘high’ risk of external debt distress,” the World Bank states.
In part, the report further states that Zambia’s unemployment levels had increased in the first quarter of 2018 compared to that of 2017 by over 0.5 per cent.
“Economic activity has faced a drag from a deteriorated fiscal and debt situation. Large domestic public expenditure arrears increased non-performing loans to 13.4 per cent of outstanding loans in May 2018, from 9.7 per cent in 2016, leading to lower private sector lending. Private sector lending has been further crowded out by increased government domestic borrowing at high yields,” the report states.
“In addition, the non-mining industry and services have been affected by low private investments and consumer demand. Meanwhile, the costs of foreign borrowing have increased for both government and firms due to tighter financing conditions and increased sovereign risk premia. Weak economic activity has constrained job creation leading to an increase in the unemployment rate from 11.7 per cent in first quarter of 2017 to 12.2 per cent in the first quarter of 2018. The unemployment rate is higher among females (14.6 per cent) than males at 10.6 per cent.”
The report further reveals that the PF government spent more money than budgeted for on roads which led to the increase in cash fiscal deficit.
“In 2017, fiscal consolidation was achieved on a commitment basis. The fiscal deficit (commitment basis) declined to 4.4 per cent of GDP in 2017 from 8.9 per cent of GDP in 2016, reflecting the clearance of K6.4 billion in public expenditure arrears, and below budget spending in subsidies by five percent; goods and services by 14 per cent; and social benefits by 20 per cent,” reads the report. “However, spending on roads was scaled up by 37 per cent and the cost of debt service was 17 per cent above the programmed target. As a result, the cash fiscal deficit rose to 7.8 per cent of GDP from an initial programmed level of 7.0 per cent.”