ECONOMIST Dr Cosmas Musumali says sovereign debt is costly and cannot be renegotiated anyhow.
On Friday, creditors refused to accept the Zambian government’s proposal for a possible six-month suspension of interest payments on debts.
Finance minister Bwalya Ng’andu, on Sunday Interview programme on ZNBC TV, evasively confirmed that Zambia has defaulted on its Eurobond interest payment of US $42.5 million.
Featuring on a programme dubbed COSTA on Diamond TV on Sunday night, Dr Musumali described the default on debt not to be a coincidence.
Dr Musumali is the Socialist Party general secretary and first vice-president.
“It (default) had nothing to do with COVID-19. COVID-19 is merely exposing a weakness in the system. Debt management has been a disaster in this country and it will continue to be so,” he said. “What happened was that immediately we got debt relief and the country was paying five per cent of its budget to debt payment, we felt very comfortable and we made a huge blunder. We started going for sovereign debt.”
He added that for commercial debt, Zambia borrowed very expensively.
“But at the same time, we went also for a lot of multilateral debt, without due regard to how we are going to pay it back,” Dr Musumali said.
“The worst part of it was that the usage of that debt, in most cases, was such that our economy was not generating enough cash to be able to re-pay that debt when the due dates did come. And the due dates are here now with us.”
Interviewer Costa Mwansa asked if the constructed roads, schools, health posts, two or three flyovers in Lusaka benefit citizens economically.
Dr Musumali answered that: “you are not going to borrow to an extent where you end up defaulting.”
“You are not going to borrow to an extent where a lot of other programmes come to a standstill because debt is taking up a huge proportion of your national budget, and that is what has happened to us,” he said. “Yes, a substantial amount has gone into infrastructural development. But even the infrastructure that we have financed through debt, let’s look at it a little more in detail. How much has it cost us? Was that a cost-effective use? Did we apply diligence? Were we frugal in coming up with that infrastructure?”
Dr Musumali regretted that the Zambian government is building roads at 50 – 60 per cent more expensive than its neighbouring countries.
“This has nothing to do with being landlocked. [But] this has to do with high levels of inefficiency, high levels of corruption and those are making infrastructure projects more expensive. Infrastructure [projects] have become a way of siphoning money out of the economy,” he explained. “So, yes you have the roads but at the same time, resources have been wasted. A culture has come into this country where future generations will bleed.”
Asked to specifically speak about the economic value of two imposing flyovers in Lusaka – at Makeni Mall and Arcades Mall, Dr Musumali started by talking about lack of infrastructure in rural Zambia.
He said the Socialist Party leadership had been in the rural areas.
“There is no part of Zambia that we don’t know. We have moved from one village to the other and infrastructure is pathetic. We are talking about the entire country; Zambia is not Lusaka,” he said.
“Zambia is not one road from Mongu to Kalabo. Even that [road] is already in a very bad shape. As soon as you reach Tapo once you have crossed the Zambezi River from Mongu, from there (Tapo) up to Kalabo the road is already developing huge potholes. Give it another one year, then you will have to re-do that whole road.”
Dr Musumali explained that due to the de-congestion project, the ‘cream part’ of Lusaka has been upgraded.
“But go round Kanyama compound, especially during the rainy season. Then you should tell me if drainage for our people in Kanyama was not a huge priority, instead of some of these glittering, luxurious type of infrastructure development that we are seeing in Lusaka,” Dr Musumali noted.
“So, within Lusaka there is that complaint that our people are catching cholera, they don’t have clean water. But at the same time we are coming up with projects which can’t relate to our people. The people in Kanyama are not going to use that flyover in Makeni and near Arcades Mall. They are not for them [but] for you (Costa Mwansa) and I, because we have vehicles. So, yes we can point to that (isolated infrastructure projects) and say that Zambia is developing. But whose Zambia is developing?”
Meanwhile, Dr Musumali pointed out that China is today the biggest lender worldwide.
He said even American debt when one looks at it, “China is playing an ever increasing role.”
“European debt, China is ever playing a bigger role. So, even for most African countries, and Zambia included, we are looking up to China when we need money from external sources. So, that’s a hard fact of life,” Dr Musumali noted. “But at the same time as a country, we got involved in sovereign debt. We went out there on the open market and borrowed for developmental purposes. This is very expensive debt; this is debt that you cannot re-negotiate anyhow. You are dealing with finance capital in the strictest sense of the word.”
Dr Musumali added: “initially, when we were in a debt trap, it was mostly multilateral debt and we were able to negotiate.”
“But this one is very difficult to negotiate. So, what’s happening is this; we also have a proportionally large amount of Chinese debt. We are talking to China, and on the other hand China is very cautious that we owe this sovereign debt, which today we are talking about $3 billion,” Dr Musumali said. “But that $3 billion, when you look at interest payments and other charges that are going to accrue, it’s going to be much higher. And they (China) are saying to us resolve that issue and we can come in. They have shown some willingness to talk to us.”
He, however, indicated that it was not a question of China being good.
“China is developing. They are in business. China has a longer term perspective of its business than, for example, the financial market where that Eurobond is coming from,” said Dr Musumali. “You can negotiate with China over the medium and long-term but it’s very difficult to do so with the sovereign debt that we have.”