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Lungu’s re-election will be a daunting task – EIU

THE Economist Intelligence Unit says President Edgar Lungu’s 2021 re-election will be a daunting task.

It has also observed that the opposition UPND is the most viable contender for the presidency but has become directionless since the 2016 election.

In its February 6, 2019 Country Report, the EIU states that Zambia’s relations with donors and multilateral financial institutions will deteriorate by 2021.

“The next presidential and legislative elections are due in August 2021, and Mr Lungu’s support from most of the Central Committee will help him to secure the PF nomination. By the time of the election in 2021, public fears of Zambia being caught in a debt trap – characterised by a loss of economic sovereignty to creditors – will be a legitimate concern among voters and one that the PF will have to answer for. Because of high debt-servicing costs, fiscal space will have also been tightened, causing salaries to be frozen and subsidies cut. All of this will make Mr Lungu’s re- election a daunting task. By implication, incumbency advantages are likely to be used to maximum effect (as they were during the 2016 general election), and a growing culture of violence and intimidation by PF supporters, as demonstrated during by-elections, means that the electoral process could easily fall short of being free and fair,” reads the report in part.

“The main opposition party, the United Party for National Development (UPND), together with a new generation of opposition parties springing up, will have to surmount these challenges. A revitalised Movement for Multiparty Democracy (a former ruling party) could also emerge as a notable political force after a leader of one of its factions, Felix Mutati, who also served in the current government – as minister of finance, and later of works and supply – was ousted from the cabinet. The UPND is the most viable contender for the presidency but has become directionless since the 2016 election. The opposition vote is also vulnerable to fragmentation unless alliances are formed. Our baseline forecast is that Mr Lungu will win in 2021, but without any commanding margin and amid deep popular dissatisfaction. Nonetheless, this forecast could easily change if opposition parties agree to form a broad-based coalition.”

The EIU anticipates further divisions in the ruling PF, resulting in the dismissal of some ministers.

On Zambia’s international relations, the EIU stated that the country would not succeed in getting an economic bailout from the International Monetary Fund.

The report stated that instead, the country would tilt heavily towards China for more borrowing.

“Zambia’s relations with Western donors and multilateral financial institutions will deteriorate. The IMF is not expected to agree to a deal with Zambia within the forecast period, and traditional donors (including the UK, EU and US) will also stay away amid concerns about corruption and uncontrolled borrowing,” the report states.

“Spurned by the West, Zambia will continue to deepen its dependency on its main bilateral creditor, China. In exchange, Chinese state-owned lenders will probably agree to a debt restructure, thereby preventing a sovereign default. However, the restructuring will be on the proviso that the government borrows more (albeit at a lower cost) for a string of Chinese-contracted infrastructure projects, and potentially allows creditors to take ownership of strategic state-owned enterprises.”

The EIU further stated that such an over dependence on China could be problematic for Zambia.

“Hence the government’s dependency on China will be a double-edged sword, providing some financial relief in the short term, but compromising relations with Western donors and investors (many of whom regard an IMF package as indispensable), as well as long-term debt sustainability,” the report reads.

On the country’s policy trends, the EIU stated that the government had not put a loan deal with the IMF as priority.

The EIU, however, doubted how Zambia would pay back the US$3 billion Eurobond.

“The idea of opening up state-dominated areas of the economy such as energy and transport will also be explored, but in practice the necessary investment will be blocked by policy uncertainty among investors. National development will instead be driven mostly by debt-financed public infrastructure projects,” the report reads.

“Without an IMF programme, it is unclear how Zambia will manage its US$3bn in Eurobond debt. A first US$750m bullet repayment is due in 2022, but there is no obvious way of meeting the commitment (underscoring the unproductive use of the funds). A sinking fund being established seems to be an implausible solution alongside a high budget deficit, and the same goes for refinancing, given recent downgrades of Zambia’s sovereign debt by credit rating agencies.”

On fiscal policy, the EIU expected continued high spending from the government.

“Spending will be high in 2019-21, exhausting all buffers. There will eventually be a correction, which we expect to occur from 2022, after the election,” the EIU stated.

“For 2019-21, high expenditure will be driven by foreign-debt-financed capital outlays, as well as debt-servicing. As the government will have difficulty raising finance locally (treasury securities are routinely undersubscribed), recurrent spending will actually decline, including in the public wage bill. Overall, however, spending as a share of GDP will be unusually high during these years.”

On the political front, the EIU anticipated more political instability resulting from public dissatisfaction with President Lungu’s governance style.

“The run-up to the 2021 election will be an especially unstable period, during which the government will narrow the political space aggressively; crackdowns will escalate any time that Mr Lungu feels that his position is vulnerable,” stated the EIU.

“As public distrust of the government grows, open dissatisfaction and the administration’s intolerance of criticism will represent a volatile mix. Protests could turn violent and, if disorder becomes widespread, extra security powers could come into force, as they did in 2017. In the run-up to the election in 2021, internal power struggles will take place within the PF. As Mr Lungu’s overarching ambition appears to be securing the presidency in 2021, potential rivals will be purged from the cabinet and possibly the party before PF nominations in 2020.”

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