TREVOR Hambayi, a senior partner at Development Finance Associates, says the austerity measures announced by the government last year are for “window dressing.”
On June 14, 2018, finance minister Margaret Mwanakatwe, in a press statement, announced that President Edgar Lungu had ordered cancellation of some existing loans, banned issuance of letters of credit and guarantees to State-owned enterprises, terminated financing of development projects that are below 80 per cent completion and cut down on ministerial travels with immediate effect.
Mwanakatwe stressed also that nobody but her was mandated by law to sign any form of loan agreement on behalf of Zambia and further banned all government officials from making public statements on economic matters and debt contraction, going forward.
The minister stated further that upon completion of the debt sustainability analysis (DSA) and a full reconciliation of Zambia’s debt stock, the exercise confirmed that: “We need to undertake measures to bring debt risk to moderate from the current high risk.”
Speaking during the launch of Zambia’s debt challenge – scaling up the IMF wall at Mulungushi International Conference Centre in Lusaka on Friday night, Hambayi lamented that the austerity measures that were put in place were not “showing any impact on reducing debt.”
The launched document was carried out under the auspices of the Centre for Trade Policy and Development (CTPD).
He said 63 per cent of Zambia’s debt was commercial, which “carries very high interest rates and is repayable in very short terms of under 10 years.”
He explained why Zambia had “failed” to get the IMF bailout package.
“The IMF has been very categorical about why they have not given us the funding and they are saying the country’s borrowing plans have compromised the country’s debt sustainability and undermined the macro-economic stability.”
Hambayi noted that the IMF, in essence, was worried at the rate Zambia had contracted debts and that the country had not shown how it would repay accumulated debt.
“So, in the time that we’ve failed to get the IMF, the few things that are not right are obviously our fiscal position which has deteriorated in the last three years and that we have continued to add on debt. The austerity measures that we have put in place are not showing any impact to reducing debt. So, the budget expenditure has grown. So, those are the basic issues the IMF has raised,” Hambayi explained.
“Obviously government has put what we call the self-imposed austerity measures which includes wage freeze, employment ban, travel restrictions and of course, subsidies. The sad aspect about those austerity measures that government put in place is that they have not said what we are saving. In true principle, it is window dressing because what has happened, if you look at the 2019 budget, we have increased our budget. Austerity means reducing expenses [but] there is nowhere where we have reduced expenses. We have actually increased.”
Hambayi also said if Zambia did not get an IMF support, “there is no guarantee that we’ll have the money when we need to pay back in 2021, 2024. So, the credit ratings agencies, Moody’s, will downgrade our rating….”
On what was missing for Zambia to get an IMF package, Hambayi said the first issue related to fiscal discipline.
He said the government ought to run the national budget on a cash basis; “spending only what we have.”
“Secondly, the infrastructure development that we’ve had, we are not saying that it’s bad, [it] needs to be done from available resources and spread it over time,” Hambayi advised.
“As a country, there is nowhere where we’ve shown how we are going to repay the money we are borrowing. We talk about very good policies; the Zambia Plus, the Seventh National Development Plan. But the simple issue is ‘how much are you paying this to reduce your debt?’ We need to show where we are going to get the money to repay and when we are going to repay.”
On resource utilisation, Hambayi underscored the need for the government to be prudent about how it was spending public finances because of “the position of where the country is.”
“We need to hedge government revenue against issues that speak to corruption, over-pricing of contracts and issues around abuse of office. Outside this, we need to strengthen oversight institutions so that we can eradicate issues of abuse of office,” he said.
And Hambayi advised that part of the money that the government was generating from toll fees must be fenced to pay back accumulated loans.
CTPD executive director Isaac Mwaipopo echoed most of Hambayi’s observations.