Zambia Institute for Policy Analysis and Research (ZIPAR) executive director Dr Pamela Kabaso says Zambia needs K6 billion to for debt servicing annually.
And Dr Kabaso has warned of dire consequences should government fail to adhere to austerity measures and fail to pay $750 million to service the first Eurobond by 2022.
Speaking when she featured on ZNBC’s Sunday Interview, Dr Kabaso observed that it was currently impossible for government to unlock any more loans.
“We need to stay the course, and we are heading closer to 2022 when our first Eurobond debt matures, and if we do not put our house in order, we will be facing a very tall order to be able to pay out that first Eurobond at $750 million. So what I am saying is that the measures should not be shelved or waived because it has become inevitable that we need to stick to the course because if we do avoid some of these measures we are facing another big hurdle, 2022 is ticking. I think this is something that we can’t postpone, whether the  election is coming or not because we have to stay the course and I think we need to mush-off all the political and social wills to stay to this course and to stick to these measures. As I mentioned earlier, we cannot avoid to implement these measures to remedy the debt and steer the economy back to medium risk distress, because if we remain at this point I think this is when people are going to start to talk about are we going to default on the Eurobond? And we don’t want that,” Dr Kabaso said.
“Already, just the debt which is hanging over us has remained that we are unable to unlock further loans. And recently the government issued a government security bill, we are undersubscribed, we are not raising the money we require. The IMF loan which we have been talking about from the last few years is still off the table and that is one of the loans we felt we could get which was quite concessional at almost zero percent. So what we are saying as ZIPAR is that the measures need to stay and we should not waive them because the repucations will be heavier than what we are currently facing. We have shared a number of recommendations with government on how we can deal with the debt , how we can deal with the sinking fund which government established some time back and we are facing constrains in just operationalizing the sinking fund. Government has committed some money over the sinking fund for this year but it is estimated that we need about K6 billion annually. The sinking fund alone is not enough, we need some more measures of course to be able to pay off the loans (Eurobonds) when they become due. We will need other measures such as refinancing through some buy-back schemes and I believe government is considering that.”
She warned that without cleaning up debt on time, the country risked incurring higher refinancing cost compared to the cost of borrowing.
“But also what needs to be taken into account is that if we are going to go back to the market to refinance part of those loans, we need to do something. We need to clean up because we need our economy to be thriving and on the way up, otherwise, the cost at which we are going to refinance will be higher than at which we borrowed the current bond and that in itself won’t help us because we will of course extend the repayment period at higher cost. And remember, we are spending more than 25 percent of domestic revenue [in] just servicing the debt,” Dr Kabaso noted.
“Let me just take you back to 2012 [when] we ushered in a new government under an economic philosophy that the pace of development was quite slow, we needed to hasten the pace at which we were developing. So with that philosophy, the government was locked in a very ambitious infrastructure development programme and with that, they ushered in an expansionary fiscal path. And when you look at just that period if you compare the growth in the budget between 2002 and 2011, the budget was growing around two percent per annum but when you compare to 2012 and now, the budget has been growing around 10.2 percent per annum. And when you also contrast it with the growth, prior to that we were growing around 7.5 percent per annum in terms of GDP and now we are around 4.5 percent [GDP per annum]. So essentially, what happens is that once the fiscal expansion boat left the dock, it was difficult to go back. And that is where it started from.”
Dr Kabaso noted that the pace at which Zambia had accumulated debt had gone too far.
“I think is was more expansionary in terms of government spending of course some of it on infrastructure projects. But I should also state that our debt position was quite sustainable. I think the fiscal consolidation did not take place at the pace in which we wanted it to take place. For instance if you look at the fiscal deficit, while it is still lower compared to 2015, we have missed all the targets. In 2017, the target was to keep the fiscal deficit at seven percent but the out turn was 7.8 percent. In 2018, the target is to keep the fiscal deficit at not more than 6.1 percent but the minister has announced that that is not going to be possible also for 2018. So the pace of fiscal consolidation has not happened fast enough. And let me also bring in the pace at which we have accumulated the debt has been too far,” she said.
Dr Kabaso stressed the need for government officials to reduce on local and international travel.
“…these arrears are simply money owed to suppliers, that is entities that have supplied government with various goods and services and these are in the private sector, and they have not been paid. So which means that their cash flow has been affected. Two-three years, government has not paid for the services you provided, where are you going to get the cash? You have to power back in your business and expenses and this has also has ripple effects because these people borrowed from the financial sector, so they had not been able to repay back their loans because government has not paid them and this has increased then rate of non-performing loans which have affected the ability of commercial banks to reduce interest rates despite that the Bank of Zambia since late 2016 has been easing the Monetory stance but commercial banks interest rates have remained stubbornly high,” said Dr Kabaso.
“And I think that is where the issue of trying to manage the pay roll so that ghost workers can be removed. Also the issue of reining in the local and foreign travels so that we can put that money on things which are going to have impact and unlock other potentials in the private sector, because if you spend money in travelling up and down while people have not been paid the arrears, growth is not going to come back. So we can reduce the delegation, we can cut down on travelling and that can channel resources to dismantling some of those arrears.”