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Zambia’s debt trouble

The government has contracted French firm Lazard Freres to advise on restructuring Zambia’s US $11 billion foreign debts that have threatened to become Africa’s first sovereign default during the coronavirus pandemic.

“The proposed contract amount for the best evaluated bid is a maximum of US $5,000,000 which is negotiable by mutual agreement, and payable based on work done over a period of three years… As we have done in the past, the government of Zambia intends to use the services of the financial advisors in line with signed agreements with lenders; multilateral, bilateral and private. I take this opportunity to restate that the government has no intention of unilaterally restructuring debt without consulting creditors. We will respect agreements and diligently use market-based instruments in our debt management,” says Secretary to the Treasury Fredson Yamba.

But Nalucha Ziba, ActionAid country director, notes that the annual cost of the consultancy fee, estimated K30 billion, is far much higher than the combined 2020 budgetary allocation for health, education and social protection.

“Furthermore, the consultancy fee is capable of offsetting our current domestic debt which stands at K80.2 billion as of 2019. This also comes at the time when the government is questionably failing to make a lucrative US $2.5 million investment in gold mining,” says Ziba. “It is our concerted view that Zambia is not short of able qualified economic managers that can advise government on debt management. It is sad that very large sums of monies will be spent to pay a foreign firm for debt management services at the expense of pressing socio-economic needs.”

Citizens have been warning President Edgar Lungu and his minions that their reckless borrowing will choke the country. He never listened. This is the same government that not too long ago was responding arrogantly to anyone who questioned their reckless borrowing.

Reality has finally dawned on them. They can’t hide it any longer.

Didn’t Edgar know that the borrowed money would have to be repaid? Didn’t he know the saying, “You don’t need a weatherman to know which way the wind blows?”

We really do not see rationality in our government failing to manage its debt, let alone paying a full $5 million to manage it. Going by the current exchange rate, this comes to about K91.6 million.

Last year the German Development Institute warned that developing countries are facing a renewed debt crisis and gave reasons why.

The institute noted that, “High foreign debt hampers the development of these countries because the money has to be used for interest and principal payments and is not, therefore, available for key investments, such as infrastructure or social spending. Long-standing internal and external problems are again among the key causes of debt in low-income countries. However, the current situation differs significantly from previous debt crises. In particular, the creditors involved have mainly granted non-concessional loans and not concessional loans. Poor debt management and low government revenues due to inefficient tax policies and weaknesses in the rule of law are among the internal causes. Furthermore, the loans are often used for the consumption of goods, rather than for productive investments. In addition, there are external shocks, such as falling commodity prices since 2011 or natural disasters like floods or storms. Structural problems, such as a poorly diversified economic and export structure, result in their economies being highly vulnerable to price and demand fluctuations on the world market. What is new about the current debt situation is that the creditors – and therefore the debt structure – have changed significantly. Developing countries have significantly increased their borrowing at market conditions, especially from new lenders such as China and India, and from private creditors. According to the United Nations Conference on Trade and Development (UNCTAD), public debt at market conditions as a share of total debt doubled between 2007 and 2016 in low-income countries, rising to 46 per cent. Compared to the concessional loans from traditional bilateral (notably lenders in the OECD Development Assistance Committee) and multilateral creditors such as the IMF and WB, these loans have higher interest and shorter maturities. This further jeopardises the debt sustainability of developing countries. Compared to those countries that are not members of the Paris Club, public debt as a share of GDP in low-income countries doubled between 2007 and 2016. One of these lenders stands out in particular: China. In contrast, loans from members of the Paris Club have declined considerably. In developing countries, the amount of public debt owed to private creditors as a share of total debt rose from around 40 per cent in 2000 to 60 per cent in 2016, according to UNCTAD. Moreover, not only has foreign debt increased, but domestic debt has also risen sharply in developing countries.”

We can sum what Edgar’s administration has done for the economy by referencing Eduardo Galeano’s observation that, “The division of labour among nations is that some specialise in winning and others in losing. […] Harnessed as they have always been to the constellation of imperialist power, our ruling class have no interest whatsoever in determining whether patriotism might not prove more profitable that treason, and whether begging is really the only formula for international politics. Sovereignty is mortgaged because ‘there’s no other way’. The oligarchies’ cynical alibis confuse the impotence of a social class with the presumed empty destinies of their countries.”

Under Edgar, our country has lost! And to fall in the same trap, despite the extensive debt relief received under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) is really shameful and inexcusable.

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