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Zambia can secure IMF bailout by implementing fiscal discipline – CTPD

ZAMBIA can secure an IMF bailout by practically implementing fiscal discipline, says Centre for Trade Policy and Development executive director Isaac Mwaipopo.

He stated that the starting point would require the country to consolidate its fiscal discipline by returning to a cash budget and spending within its revenue generation capacity.

Mwaipopo stated that there was need to restructure the current infrastructure development agenda in order to align it to the available resources and spread it over time.

“Additionally, Zambia needs to design a debt repayment strategy that is specific as to the amounts to be repaid and when, the source of the funds to finance it and how it will be generated. Implementing this strategy will also require prudent financial management that speaks to responsible use of resources, hedges against corruption, over pricing and abuse of office and strengthening the arms of government institutions that are mandated to offer the checks and balances,” he stated.

Mwaipopo stated that the International Monetary Fund bailout package was therefore well within the country’s reach.

He stated that Zambia should take advantage of the impending visit by the IMF team and clearly make its case.

Mwaipopo commended the government through the Ministry of Finance on commitment shown in pursuing a bailout package from the IMF.

He stated that it was the CTPD’s hope and expectation that negotiations around the financial support would be concluded within the course of 2019 or else Zambia should begin intensifying efforts in identifying alternative options through which it can restructure its public debt.

“As the team from IMF visits Zambia for their routine visits under Article IV, we expect that a lot more progress will be made in concluding discussions on the financial bailout Zambia is seeking from the fund as the discussions have been going on for too long,” he stated.

Mwaipopo stated that the government had for the past three years sought to engage the IMF for a bailout package of about US$1.3 billion aimed at easing the current macroeconomic and financial challenges while the country implements urgent stabilisation and

fiscal reforms.

“The home-grown Economic Stabilisation and Growth Programme (ESGP) and fiscal consolidation agenda are steps in the right direction but the IMF demand more before providing the needed support. There have been several rounds of discussion and negotiation over the IMF bailout package which have since stalled since 12th July 2018. What has been lacking is government commitment on the fiscal side to reducing government expenditure. Increasing government expenditure on infrastructural projects such as roads and airports is simply not in tandem with fiscal consolidation, austerity and reducing the accumulation of public debt,” he stated. “With regards to general public perception, a number of citizens have expressed scepticism on government’s intentions to get a bailout from the International Monetary Fund following experiences lived in the 1990s. Under an IMF programme then, the 1990s saw the government cut spending, scrap subsidies, liberalise the exchange rate and privatise over 200 state-run firms. This structural adjustment was painful for many to take in: employment shrivelled and, by the end of the decade, income per person had shrunk by 8 per cent.”

He stated that while it was important to remember the past, there was need to recognise that both Zambia and the IMF have changed in many ways.

“Since 2009 the IMF has acknowledged this shortfall in using a ‘one-size-fits-all’ approach and has moved to an approach that identifies mutual performance areas and promotes national ownership of criteria (this approach is exemplified in the Ghana support package and was on the table for Zambia, as confirmed by the former resident representative). This means, Zambia should have ownership of its own economic recovery policies, which can be agreed with the IMF, in order for the fund to come on board,” stated Mwaipopo. “Although, in early, 2018 the IMF rejected Zambia’s plans and withdrew from further talks concerning a bailout package, Zambia has the option to go back to the IMF with proposals for fiscal consolidation that will suit the country’s needs. An IMF programme also comes with benefits which are far more important than the Zero interest monetary Balance of Payment support. In the eyes of financial investors, an IMF successful engagement is generally considered to be a seal of approval on macroeconomic and financial management. A deal is a mark of faith in the Zambian economy, which will allow the country to benefit from increased foreign direct investment (FDI) and donor funding and also pave the way for refinancing its Eurobond debts at a lower cost.”

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