As Centre for Trade Policy and Development (CTPD), we would like to commend Government for taking very bold and highly ambitious stance towards an IMF programme. The country’s much needed political will to transform the economy.
The Staff Level Agreement between the Government and the International Monetary Fund (IMF) is a step in the right direction. This milestone means that the Government is closer to clinching the Bailout Package with IMF. It also entails that the Government will have to wait for a report by the IMF staff and subsequent approval by its management. Furthermore, there will be need for Zambia to engage with creditors and obtaining adequate financing assurances using the Debt Sustainability Assessment Report carried out during the meetings. From these reports, the IMF Executive Board in Washington would be expected to discuss and make the final decision, as to whether Zambia will receive the ($1.4 Billion or K24.5 billion) or not.
The implication of the IMF programme entails that there will be realignments of various fiscal measures such as subsidies on fuel and electricity, as well as the Farmer Input Support Programme (FISP). Government’s monthly spending on subsidies are $67 million (K1.2 billion) on fuel and $40 million (K700 million) on electricity. This further translates into annual figures of around $800 million (K14 billion) on fuel and $500 million (K8.75 billion) on electricity. The savings from this, amounting to K22.5 billion are enough to cover the Constituency Development Fund (CDF) Budget for the next five (5) years at new CDF Allocation of K25.7 million per Constituency.
It may interest you to note that the incidence of subsidies largely benefit the foreign corporations. For instance, mines are being subsidized by over $780 million (K13.65 billion or 60 percent of total subsidies) every year in both fuel and electricity, while Zambians are only getting a $26 million (K455 million or 2 percent) per year.
As a cushion to the possible effect of price increase, Government expenditure towards social spending such as health, education, social protection have been increased to protect the most vulnerable. Equally monetary policy has been adjusted upwards to avert the expected price increases. We are happy to note that in this IMF deal, there will be no wage freeze, no job cuts, employment freeze etc. The truth is that Zambians should be braced for hard times now and a better future ahead.
There is need to appreciate alternative options that well-meaning Zambians have been proposing to avert the IMF programme. However, these options make assumption that Zambia is not indebted to over 44 external creditors that have direct interest in our meagre resource base.
Therefore, a conversation of ‘No IMF programme’ is only possible when one assumes there are no external creditors calling shots to have the IMF guarantee for their interests. So, if one is asking why Government is contracting additional debt from the IMF, there is lies your answer. Besides there many benefits such as technical support, flexible concessional interest rates to be repaid over a long period of time than commercial debt, improved credit rating and prospect for Foreign Direct Investments. In such a situation, Zambia needs to address these interest groups by taking care of their different needs. In Zambia’s current vulnerable state, the country needs the IMF programme not only for her own sake but including external creditors whose money we have already committed towards expenditure including subsidies.
With defaults of some repayment obligations, Creditors are skeptical about the political risk of Zambia, hence the need for Government to be on an IMF deal as an assurance that Zambia will restore fiscal and debt sustainability to support the Creditor’s compliance towards renegotiation of debt through refinancing and restructuring. Therefore, Zambia needs the IMF at this point to have a robust and inclusive approach covering all stakeholders.
Sudden rise in revenues domestically is exceptional, and 100 percent recommended but let’s face it, why has it been difficult for this to happen all these years? Lack of political will. In addition, there are several structural changes, agreements, and contracts that need review before we can safely rely on our domestic resources. Just to issue caution, debt is inevitable for any country, worse if a country is faced with a debt trap situation like Zambia. Unless Zambians are willing to pay very high taxes than the current levels.
As CTPD, we do appreciate that the Government has started on a promising note by sharing statistics on debt figures, but that is not enough. We would be happy to see what documents Government is using detailing the Economic Recovery Agenda. Government should adequately reveal the economic recovery plan that they are using to interface with the IMF. The Government has remained mute over the Economic Recovery Plan (ERP) document that was formulated by the immediate past regime. In addition, the pillars cited by the Government as drivers of their unpublished economic recovery plan are in the Draft 8th National Development Plan which is not yet been availed to the Public. As CTPD, we urge Government to expedite the process to finalize the document.
Furthermore, CTPD expect the Government to come up with a very comprehensive communication strategy that will prepare the Zambians about the challenges that lie ahead before the economy begins to take shape.