THE Centre for Trade Policy and Development has continued to note the rapid accumulation of debt and consequent negative effects on Zambia’s economy. CTPD researcher Bright Chizonde said debt management, limited transparency in reporting debt statistics, political economy overrides, legal shortcomings, and fiscal indiscipline continue to undermine Zambia’s economic performance.
He said the proverb “cutting your coat according to your cloth” provides timely advice on the need to cut and stitch the coat according to the cloth available.
“It also warns that the size of the coat should not exceed the piece of the cloth in hand or else the coat will be unfit to wear. It is necessary for everyone to make a proper plan before any investment undertaking. A person who spends more than his/her earnings may soon fall into trouble,” Chizonde said.
He said Zambia’s economic growth had slowed down and foreign reserves had been rapidly depleting while interest rates remained high limiting the growth of the private sector.
“Even in the wake of increased taxation, the government’s liquidity position has not improved due to failure to limit excessive fiscal spending,” Chizonde noted. “The need to ‘cut your coat according to your cloth’ is much needed advice for the current situation. Government should do as much as they can to work with what is available.”
He said, according to the government’s official statistics, as at end of March 2019, the stock of external debt stood at $10.18 billion with domestic debt at K58.21 billion.
” Moody (2019) estimates the Zambia’s debt will exceed 75 per cent of gross domestic product in 2019, from around 62 per cent in 2017. The major concern is however not the stock but the growth rate of Zambia’s debt. In just one quarter, October to December 2018, Zambia’s gross debt increased by about US$1 billion, from US$16.5 billion at the end of September to US$17.5 billion at the end of December 2018. This rapid increase in public debt and debt servicing has resulted in reduced budget allocations toward education, health and social protection,” Chizonde said.
“Furthermore, Zambians have been subjected to a greater tax burden through increased domestic resource mobilisation aimed at collecting more taxes to service debt.”
He said the government’s drive for rapid infrastructural development has been a classic case of a failure to ‘cut your coat according to your cloth’.
Chizonde said the government needs to come to terms with the fact that Zambia, like many other developing countries, cannot borrow excessively without unleashing dire consequences on its economy.
He said the failure to implement fiscal restraints on debt accumulation had compromised debt management.
Chizonde said Zambia’s debt management had a dual problem.
“Firstly, there exist poor policy coordination among the various government policy documents such as the Medium Term Debt Strategy and the National Budgets, which has affected effective implementation. Secondly, Zambia’s debt management strategy suffers from political overrides,” he said
“Experts believe that decisions to accumulate more debt have been influenced by the political economy, and thus are not made on the basis of economic benchmarks and macroeconomic stability but are subject to political objectives. If the nation is to ‘Weather the Storm of Rising Public debt’, the politically empowered should learn that even governments have resource limitations and should therefore prioritise their spending on projects with the highest human, developmental and economic returns.”
He said past austerity measures and the fiscal consolidation agenda have been ineffective due to escalated fiscal spending.
Chizonde urged the government to move to cash budgeting and spend according to the domestic resources envelop.
He said Zambia needs to limit spending to important growth enhancing projects, prioritise the construction of strategic capital infrastructure, and enter into Public Private Partnerships (PPPs) for the recouping of investments instead of rapidly contracting commercial loans.