THE Socialist Party says the economic situation in Zambia is currently bad, the options are limited, and the leadership is clueless and detached.
Meanwhile, Socialist Party (Zambia) 2021 presidential candidate Dr Fred M’membe says an economic tragedy cannot be concealed anymore and days of manna are gone.
During a media briefing in Lusaka yesterday, Socialist Party (Zambia) deputy general secretary and 2021 running mate, Dr Cosmas Musumali, highlighted a number of issues that characterise Zambia’s current “catastrophic economic outlook.”
Dr Musumali, an economist, said among the features that have given the country’s economy a gloomy looking is a highly volatile kwacha, especially over the past two weeks.
“The kwacha is continuing to depreciate – at K14 to a dollar, it is at its lowest since November 2015,” Dr Musumali said.
“[The other issue is] high international and domestic debt and servicing levels – with the ratio of debt to GDP estimated to reach 90 per cent given a depreciating kwacha.”
He indicated other issues like reductions in export earnings, foreign direct investments (FDIs), portfolio investments, development assistance and other external sources during 2017 and 2018 as well as the first quarter of this year.
“During the same period, imports have not significantly reduced and balance of payments have continued to remain wide – above 4.5 per cent.
“To finance the current account, the authorities resorted largely to drawing down on foreign currency reserves. The move brought down reserves to USD1.6 billion – just sufficient for two months import cover! This development contributed to exerting huge pressure on the kwacha.”
He added that there was an over-stretched monetary policy toolkit, applied over the years in the absence of significant fiscal consolidation.
“Foreign current reserves have been used to cover up for that huge gap that has been created. In this case, we do not see any progress over the next quarter. We also noted that monetary policy and all its toolkit which has been applied over the past four years, in the absence of significant fiscal consolidation, is reaching its end,” Dr Musumali noted.
“You can’t use monetary policy today in Zambia to correct the situation; it has been over-stretched. What that means is that there is an elevation of the financial sector vulnerabilities.”
Other issues Dr Musumali highlighted are poorly handled and negotiated mining tax regime changes, revenue disruptions due to the re-introduction of sales tax and abolishing of VAT and relatively poor agricultural performance due to insufficient rainfall in the southern half of the country.
“There was a lot of optimism at the very beginning in terms of the mining tax regime changes but these were very poorly handled and very poorly negotiated. The outcome is there for everyone to see where mining houses today are threatening to pull out and you have a government that is desperate and panicking and staging some show to the Zambians that they will take over and run these mines effectively,” Dr Musumali explained.
“The worst issue that Zambia is facing, in terms of its economy, is that you have a government and a leadership that seems clueless and quite often unwilling to take remedial action that is perceived to hurt its re-election prospects.”
He further underscored that while there was an economic problem that needed to be solved, “the people that should provide solutions were reluctant to do so because resolving that problem, politically it will be suicide.”
“Their priority is very clear; let the Zambian economy deteriorate and still remain in power. So, it is an extremely precarious situation that we find ourselves in. We find ourselves today in a very dire situation and this may not be all that is apparent to everyone,” Dr Musumali said, adding that the current economic status in the country validated the leftist party’s negative and pessimistic analysis of the economic trajectory in October last year.
“The message is that the situation is bad, the options are limited and the leadership or the captains of this economy look clueless and detached.”
On whether or not the global scenario could offer much economic hope for Zambia, Dr Musumali responded negatively because: “China that has been the locomotive of growth for three decades” has low projections for this year of about 5.4 per cent, the lowest growth rate since 1990.
He noted that the global demand for commodities, including copper, would not be that high.
“These developments have a negative domino effect on developing countries, Zambia inclusive,” Dr Musumali indicated.
On what the consequences for the Zambian economy would be, due to the highlighted economic factors, Dr Musumali said: “for 2019, let’s forget about significant economic growth in Zambia.”
“Zambia’s projected growth for 2019 was initially pegged at 4.2 per cent, but with the world economy slowing down more than initially expected, the projections were revised downwards to 3.1 per cent,” he said.
“However, the weight of current domestic developments may start threatening even this low GDP growth projection. A growth rate below three per cent is becoming a possibility.”
Dr Musumali explained that it would be sensible for a landlocked and mono-cultural export economy like Zambia’s to have an import cover of four months in order to flatten risk levels.
He noted that the current low level of import cover of two months eroded economic confidence and activated currency speculation.
“Without decisive fiscal and monetary intervention, the reserves will continue to dwindle,” Dr Musumali said.
“The Socialist Party therefore sees inflation rising beyond the range for 2018. Double-digit inflation rates will be most likely.”
He also observed that the cumulative impact of increasing debt servicing, declining exports, low currency reserves and climbing price pressures was “toxic.”
“Overall private consumption will be negatively impacted, macro-economic stability will be hard to sustain and economic growth prospects for 2019 and beyond will be compromised,” said Dr Musumali.
“For the Zambian working masses, the poor, unemployed, students and all Zambians already facing economic hardships, their situation will continue to worsen. Prices of essential commodities will escalate, earned income in kwacha will lose its purchasing power, taxation levels and user charges will increase and poverty levels will not reduce.”
Meanwhile, on what the government ought to do in the midst of Zambia’s ailing economy, Dr M’membe gave a number of measures that the PF government should implement.
He, however, said the first step for the government was to admit that there was an acute economic problem.
Dr M’membe observed that the current economic state would result in both big and small businesses not expanding, “which will mean more retrenchment of workers.”
“The consequences on the economy are starting to show. What was concealed cannot be concealed anymore! Even they themselves are admitting in some way, albeit in not a direct way, that things are not okay. They are promising that things will be okay; how? They are not showing us how things will be okay,” Dr M’membe said.
“In short, they do not have solutions on how to make the situation okay. Days of manner are gone! There are no miracles; there is no witchcraft or magic on the economy. You can’t play abracadabra; you need concrete measures that are transparent.”
He recalled that in his last media briefing, “we advised the government that the first thing is to own up that the economy is in great danger and the livelihoods of millions of Zambians are at stake.”
“We described the economic crisis as a national disaster of high magnitude. This description remains true today,” Dr M’membe said.
“We further stated that the PF government must also acknowledge [that] their policies and actions, to date, have greatly contributed to the difficult situation the economy finds itself in.”
He added that in trying to find economic solutions, a non-partisan approach was urgently needed where all Zambian stakeholders, including workers’ representatives, peasant associations, academia, political parties and movements representing the masses of our people had to be engaged in building consensus on the options for saving the economy from total collapse.
“About seven months down the road, this advice has been ignored with severe consequences for the entire economy and the Zambian people. Time is running out!” Dr M’membe said, adding that what Zambia was going through was part of a globalised capitalist crisis.
“The typical menu of capitalist solutions will not deliver. They are in effect a contributing factor. We have climbed our Calvary. We have tried carrying the boulder and Sisyphus up and down [but] we are not out of it. Where there is a crucifixion, there must be a resurrection…. We cannot continue chasing shadows or a mirage.”
He also noted that opposition political parties in the country that were largely advocating for more austerity and more external assistance were “equally misdirected.”
Dr M’membe pointed that the sheer incompetence and desire to maintain political power, at all costs, by the PF administration was worsening the situation in Zambia.
“We still reiterate the need to win back the trust of the Zambians and international finance markets that the PF government can still be entrusted on the helm of the economy for another two years,” he said.
He then spelt out some actions for the government to gain trust, among them maintaining a lean Cabinet.
“The recommendation of the NDF (National Dialogue Forum) to reintroduce deputy Cabinet ministers is heading in the wrong direction; (ii) drastically cutting the allowances of the top leadership by 50 per cent; (iii) reducing the costs of international travel by 60 per cent [and] (iv) reversing the increases in salaries of all constitutional position holders,” he explained.
“(iv) cutting the cost of running the government fleet by at least 40 per cent; (v) cutting the bill for workshops and conferencing by 70 per cent; (vi) undertaking concrete governance measures that would point to a zero-tolerance approach towards corruption.”
Dr M’membe further indicated that the socialist party still recommended that external debt contraction and sustainability should be a constitutional responsibility under close parliamentary scrutiny.
“There is need to embark on developing a legal framework that would constrain a sitting government from incurring unsustainable debt levels that have potential to destroys the entire economy,” said Dr M’membe.