Analysis: EMELDA MUSONDA
IN MANY developing countries including Zambia where financial resources are scarce to fully fund annual budgets and economic activities in particular, borrowing becomes an inevitable option.
The Zambian government has been upbeat about infrastructure development and diversification of the economy away from heavy reliance on copper exports to other sectors such as agriculture, manufacturing and tourism.
This calls for massive investments beyond the country’s financial muscle.
In the past few years Government has embarked on an ambitious infrastructure development programme aimed at addressing the binding constraints to growth caused by the poor state of economic infrastructure.
This is out of the realisation that infrastructure is the bedrock on which sustainable and inclusive growth can be attained.
The financing of this ambitious programme has obviously led to accumulation of debt.
Even if Government may attract direct foreign investment and participation of private sector in some areas, there is still need for it to drive the process of investing in the economy by mobilising funds and borrowing is one of the ways of doing so.
Whereas borrowing may be inevitable for a developing country like ours, there is need to ensure that debt is kept within acceptable levels to avoid crippling the same economy it is meant to revamp.
In the recent past, various stakeholders including the World Bank have raised alarm on Zambia’s debt levels which stand at US$7.2 billion.
Minister of Finance Felix Mutati during the presentation of the 2018 National budget also emphasised the need for the country to slow down on borrowing.
Indeed this is the way to go considering that debt has potential to choke economic growth if left to accumulate to unmanageable levels.
According to the World Bank, the status of affairs is that 30 percent of Zambia’s revenue is used to finance debt, 50 percent goes to public expenditure while the remaining 20 percent covers everything else.
In light of these gloomy statistics the need for the country to slow down on borrowing and rethink its debt management strategy cannot be overemphasised.
It is, however, commendable that amid concerns on escalating debt, Government is working to find solutions.
Recently, the Ministry of Finance published the Medium Term Debt Strategy (MTDS) that seeks to return the debt to low risk of debt distress.
The strategy outlines measures to drastically reduce the rate of debt accumulation, attain a cheaper and longer debt maturity profile.
In addition, future borrowing will be undertaken strictly within sustainable levels.
The strategy also defines measures towards the refinancing of the three Eurobonds and dismantling of the stock of arrears.
Under the strategy, the Government will also continue to utilise public private partnerships and joint ventures to finance projects and reduce the burden on the Treasury.
This is the first time that such a good governance initiative has been implemented in Zambia.
Government is also in the process of publishing a Government securities issuance calendar and auction announcements, the results of which will also be published regularly.
The government will also embark on the publication of quarterly debt statistical bulletins and an annual debt report. This will be done to achieve maximum outreach to stakeholders and equip them with the correct perspective of Zambia’s debt situation.
As a way of enhancing accountability and transparency, Mr Mutati announced during the 2018 National Budget presentation recently, that he will, during this session of Parliament, present a bill to repeal the Loans and Guarantees (Authorisation) Act.
According to the minister, the bill will provide for enhanced oversight over the borrowing activities of the Government by having the National Assembly approve loans before they are contracted. This is in line with the provisions of the Constitution.
Under its current state, the Loans and Guarantees (Authorisation) Act which was enacted in 1968 and amended in 1972 gives blanket authority to Government to commit the country to debt.
Section 3 of the Act gives the Minister of Finance general power to borrow both within and outside Zambia, as she or he may deem desirable. The ceiling on borrowing is however contained in a statutory instrument authorised by resolution of the National Assembly.
If the bill is passed it will no doubt help in keeping our debt levels within acceptable levels as members of Parliament especially the opposition will constantly keep government in check.
The bill is indeed progressive and must be supported by all well-meaning Zambians.
It will also give members of Parliament an opportunity to provide a broader and alternative perspective to the benefits and risks involved in any debt agreement.
It is also good to note that Government intends to reduce foreign currency denominated debt in the long term by switching to domestic debt aimed at managing the exchange rate risk.
A Zambian economist, Professor Oliver Sasaa, recently remarked that, “You cannot borrow yourself out of poverty; that’s an impossibility, it is like digging one hole to fill the other”.
While his sentiments are valid, they only apply in a case were debt is incurred for consumption purposes.
The minister during the presentation of the budget emphasised that we must borrow less and where we need to borrow, it should be for projects that will generate growth and enable us to repay.
From the budget allocations and the minister’s pronouncements it is evident Government is taking a two-pronged approach to debt management by limiting the debt incurred and prudent expenditure of money borrowed.
Government is also in the process of reviewing the Public Procurement Act in a bid to seal the loopholes through which it has been losing money.
These and many more measures articulated in the budget presentation if well implemented will certainly help the country drastically reduce its debt burden as well as reap returns on every borrowed Kwacha.
The author is Zambia Daily Mail editorials editor.