“The pace of debt accumulation is of concern to the Government. I will therefore continue to engage Cabinet on this matter. My proposals will include a moratorium on new non-concessional borrowing and guarantees so as to attain a large frontloaded and sustained fiscal adjustment path in the medium term. We will continue to prioritise management of disbursements of on-going projects,” says finance minister Margaret Mwanakatwe.
Why should the pace of debt accumulation be of concern to the government when all along Edgar Lungu and his minions have been arrogant and unyielding on the issue of debt.
Edgar has refused to listen to advice on borrowing and vowed to continue borrowing. Even Mwanakatwe herself has not been that forthright on this score. She has been very opportunistic trying to wriggle her way between Edgar’s wrong and ignorant approach and the correct and well informed position being advocated by people who know something about economics and consequences of excessive borrowing.
We don’t think Edgar will accept a moratorium on borrowing and accept to stop borrowing in the year before elections. Edgar is desperate to win the 2021 elections at any cost. And to win in 2021 he has to continue spending big, even if it means continuing to borrow and bankrupting the country.
If Mwanakatwe will try to stand in Edgar’s way, she will be fired. But does Mwanakatwe have the courage and moral strength to defy Edgar and defend what is right?
Mwanakatwe is not known for being a strong and principled person. Her inconsistencies so far project her as spineless and an opportunistic person.
But we know very well that excessive debt will have very serious consequences for this country. Debt has several effects on a country. Negative effects of excessive borrowing will require citizens to give up benefits, government services. Is this good for Edgar in the year before the elections?
The kwacha will depreciate with additional debt. Since the country is borrowing more money, it must sell more of its bonds and there is an increased risk it can’t pay them back. The country’s credit rating may drop. The cheaper currency has an economic stimulus effect. For example, if the kwacha drops in value, it helps exporters since Zambian exports are now cheaper for customers in other countries. Imported goods prices increase, helping local manufacturers while increasing costs for other citizens. In the case of a country like Zambia that imports almost everything and exports very little outside copper the benefits are very minimal as the imported goods become more expensive.
We may witness more privatisation of the very few remaining public enterprises to pay off debts. They may start privatising even water companies to reduce their obligations.
Clearly, excessive debt can lead to political instability. The government will generally raise taxes and reduce services when debts reach a high level. The government may start failing to pay public workers like soldiers, police officers and others, increasing risks of political instability and crime.
The consequences of excessive borrowing are starting to catch up with Edgar and his minions. They can’t conceal them anymore.