Before his promise, several local and international media outlets had reported on the looming debt crises in Zambia, which President Lungu dispelled.
In his words, “Zambia is not in a position of a crisis…Zambia can repay its debt.” But regardless of Lungu’s rhetoric, Zambia’s current economic indices tell a tale of a country struggling due to high debt hangover, adverse climatic conditions, and bad policies.
What is even more worrisome is that the bulk of these debt stocks are owed to external lenders with interests and repayments constituting huge capital flight from Zambia. The current high debt overhang has dire consequences on Zambia’s economy and more importantly, on Zambians.
In 2005, practically all of Zambia’s previous external debts were canceled after it met relief conditions for the World Bank and the IMF under the Highly Indebted Poor Countries (HIPC) initiative. Fourteen years on, Zambia is on the brink of a debt default as a result of what some analysts call, a ‘reckless borrowing culture.’
Between 2011 and 2019, Zambia’s external debts have ballooned to a whopping $10.23 billion with the bulk of it accrued in the last five years. This calls for worry, especially if the size of Zambia’s debt is compared to the size of its GDP.
Indeed, Zambia recorded good levels of success after the 2005 relief primarily because of the rise in the price of copper. The economy became one of the fastest-growing in Africa. This growth, however, had little impact on the majority of Zambians.
The election of former President, Michael Sata, in 2011, created high expectations of a broader growth and the new Patriotic Front government, in response, initiated numerous construction projects. It also embarked on several infrastructural projects, significantly the expansion of roads, airports and hydro-power plants.
To finance these numerous projects, though, the government turned mostly to the European bond market and the Chinese government for loans.
Although financing investment in infrastructure through debt is necessary because it helps offset resource gaps in the economy, it is, nonetheless, unsustainable. Countries borrow to finance development projects. Sometimes they borrow to finance interest payments due to low resources. The latter is often a result of overwhelming poverty rates or other resource management problems; it correlates with Zambia’s current situation. Moreover, Zambia’s debt has risen thus high due to other reason including the need to cover its growing budget deficit while maintaining an expansionary budget policy.
While some of the roads and other infrastructures for which the loans were granted have been completed, most of them have been abandoned. Zambia’s level of infrastructure development does not tally with its rate of indebtedness.
According to the Zambia Institute for Policy Analysis and Research, government spending on debt-interest payments has squeezed spending on social services such as the public service pension fund, social cash transfers, and economic empowerment programs. These are enormous problems for ordinary Zambians to deal with. But Zambia’s debt can be managed better.
The government already announced in October 2019 that it is pursuing austerity measures and that it is exploring ways to enhance domestic resource mobilization, refocus expenditure, and narrow the fiscal deficit. Although these are commendable promises, the government must explore additional measures to reduce debt distress. But none of these would be achieved without transparency.
Expenditures must be prioritised. Not every need is worthy of borrowing to pursue. There are development projects that could be properly and efficiently provided by the private sector.
Ayogu Emmanuel Nnamdi is a Writing Fellow at African Liberty. He can be reached on Twitter: @AyoguAyogu1
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