JCTR has warned against misconstruing the latest World Bank Global Prospects report to mean that borrowing has no limits.
Last Monday, the Zambia Daily Mail carried a story quoting the World Bank report as saying that borrowing was beneficial, leaving out the risks associated with the practice as highlighted in the same report.
But the Jesuit Centre for Theological Reflection (JCTR) said such publicity was dangerous to calls for prudent management of public resources.
“It is therefore very surprising and saddening that on Monday 13th January 2020, the Zambia Daily Mail carried a headline titled ‘Borrowing is Beneficial’, citing the 2020 World Bank Global Prospects report without highlighting the risks that come with borrowing. These risks that the World Bank highlighted in its report are the major concerns of most critiques of Zambia’s borrowing including JCTR,” deputy director Fr Alex Muyebe warned in a statement. “We therefore note with concern that such publicity has the potential to be detrimental to the calls for the prudent financial management of public resources. The JCTR wishes to therefore emphasise that the World Bank report should not be misconstrued to mean borrowing has no limits. Evidence both globally and domestically indicates that rising debt can be detrimental to the national economy.”
He asked the government to cancel some pending debt so as to avoid constricting the country further.
“It remains imperative that action is taken to indeed slowdown external debt contraction, postpone and cancel some pipeline loans. Otherwise, the poor and vulnerable will continue to bear the brunt of our poor public resource management,” Fr Muyebe stated.
“Zambia’s external debt has been on the rise in the past few years. According to the Ministry of Finance data, Zambia’s domestic debt stock in terms of securities and bonds rose to K60.3 billion as at June 2019 compared to K15.1 billion in 2011. Against this back drop and even more alarming over the years is the component of external debt that rose from US$3.2 billion in 2011 to $10.23 billion as at the end of June 2019. The current debt-to-GDP ratio thus stands at over 50 per cent of GDP (gross domestic product).”
Fr Muyebe stated that the socio-economic distress from Zambia’s debt overhang was abundantly evident.
“For example, analysis conducted in 2018 by the Zambia Institute for Policy Analysis and Research (ZIPAR) highlights how detrimental rising debt can be to the economy. In 2018, fiscal authorities spent K6.2 billion as external debt interest payment due to the huge external debt and the resultant increase in debt service obligations,” he stated.
“Most notable is that this was 49 per cent or K2.0 billion over-budget. The effect of this was seen when three socially oriented programmes – Social Benefits (pensions, social cash transfer and so on), Strategic Food Reserve, and Water and Sanitation experienced a combined 66 per cent (or K2.0 billion) budget cut. The JCTR notes with concern that because external debt service default comes with onerous consequences, the country chose to compromise its food security position and further marginalise the poor and vulnerable people.”
He stated that due to high debt risks, the same report emphasised the need for strong regulation and supervision of public expenditure.
Fr Muyebe stated that the current debt levels signified an emergent social crisis.
“Therefore, while it is true that external debt (given certain prerequisites) is critical in financing growth-enhancing investments such as infrastructure, health care and education. It is however also evident that excessive accumulation of debt holds potential for adverse economic and social consequences. It is for this reason that the 2020 World Bank Global Prospects report highlights the need for strong regulatory and supervisory regimes, good corporate governance and improved debt transparency and debt management among others at the backdrop of every country’s debt management efforts,” stated Fr Muyebe. “These aspects, which are lacking in Zambia, are key in containing the many risks that come with external debt and in identifying vulnerabilities early. As JCTR, we are not against Zambia’s borrowing per say. However, for transparency in debt contraction and prudent utilisation of debt resources to avert unnecessary debt burden on Zambians, we are of the view that the debt-related stress that the country is now facing signifies an emergent silent social crisis. JCTR urges the government to not wait for a full blown debt crisis to manifest itself through defaults on debt service obligations before prudent decisions are made.”