By Jeff Kapembwa
Lusaka – Zambia has heeded the cautionary note raised by the International Monetary Fund (IMF) to arrest escalating debt by taking drastic steps to redress its “appetite” for borrowing to reduce external shocks.
A recent resolution by the Cabinet shows that Zambia has rescinded its increasing appetite to borrow amid calls for fiscal consolidation and the need to create fiscal space for the economy to grow as debt levels threaten to hit 60 percent of the gross domestic product (GDP).
Finance Minister Felix Mutati told The Southern Times last week that a recent Cabinet meeting agreed that now and in future, the Government would limit commercial borrowing and concentrate on concessional borrowing as a measure to monitor indebtedness.
“We have reviewed various fundamentals at play and, as government, we shall only seek to borrow what we can afford to pay back,” said Mutati.
This comes amid concerns raised by the Bretton Woods institution about Zambia’s increasing desire to borrow beyond its means that has culminated in the ballooning of its budget deficit which has swelled to over seven percent of the GDP.
This further threatens the country’s ability to service the US$3 billion owed to the international markets in Euro bonds used in infrastructure development, including roads, health institutions as well as other facilities.
Since last year, Zambia and IMF have been discussing a US$1.3 billion loan facility for the southern African country’s infrastructure development programme. However, the talks stalled in August this year with the international lender urging more fiscal discipline to save the country from indebtedness.
According to the IMF, Zambia should exercise restraint and bolster its economic growth path by slowing down its indebtedness. Instead, IMF urged Zambia to secure concessional loans to save the country.
IMF and other players fear that the country’s debt, which is hovering around 42 percent of the country’s GDP, might skyrocket beyond 60 percent with the ongoing infrastructure development countrywide.
“We appreciate the idea of closing infrastructure gaps but we need to adhere to debt sustainability through, among other initiatives, fiscal consolidation to create space,” IMF head in Zambia, Alfredo Baldini, noted during a discussion in Lusaka on the debt sustainability forum held in Lusaka.
Baldini, speaking during the Zambia Institute for Policy Research Analysis on the country’s public debt in Lusaka last week, said Zambia needs to realign its policies and avoid falling into a debt trap through contraction of non-concessional loans, as this poses greater risk of failing to remain on a sustained path.
“It’s IMF’s concern that the public debt had reached unprecedented levels and had eroded the capacity of the private sector to borrow and grow their businesses, hence the call to slow down and undertake, among other housekeeping measures, fiscal consolidation, restraint on non-concessional borrowing, and strengthened debt and public investment management capacities to hop on a sustainable path,” he said.
IMF is more worried by the increasing external debt, which has continued to soar, putting Zambia at high risk of debt distress.
“The public and publicly guaranteed debt had risen to over 36 percent of GDP at the end of 2014 to 60 percent at the end of 2016, and this was largely driven by external borrowing coupled with the impact of exchange rate depreciation,” Baldini added.
While Zambia’s long-term outlook has improved in recent years, spurred by good rains and a surge in copper prices and the tight monetary policy, succeeded in stabilising the exchange rate and slowing down year-on-year inflation to 6.6 percent in September 2017, the country needs to relook various debt contraction agendas or risk defaulting when payments are due, said the IMF official.
IMF has commended Zambia’s removal of subsidies on electricity and petroleum, noting that the decision will save resources for economic growth.