Zambia is facing a debt crisis – Caleb Fundanga


Former Bank of Zambia Governor Dr Caleb Fundanga has stated that the country’s public debt has now reached crisis levels.

And respected Economist Mr Muna Hantuba has predicted that Zambia may not be in a position to pay back the first Eurobond of US$750 million when it falls due in 2022.

Dr Fundanga noted that Zambia will face significant fiscal pressure between 2022 and 2027 as the Eurobonds matures.

He also noted that the ratio of external debt service to revenue is projected to increase and breach the sustainable threshold of 20 percent between 2022-2027 from 9 percent on average from 2015-2021.

Dr Fundanga was speaking at a public discussion organised by the Economics Association of Zambia under theme, ‘Zambia Debt Situation: Back to HIPC?’

“Based on the debt sustainability analysis conducted jointly by the World Bank and IMF in May 2015, Zambia’s risk of external debt distress was considered to be moderate. However, recent debt sustainability analysis conducted by the IMF and the World Bank indicate that Zambia has a high risk of external debt distress, emanating from the Eurobonds maturing between 2022 and 2027,” Dr Fundanga stated.

He said Zambia is currently a medium performer on the Country Policy and Institutional Assessment Score (CPIA) of 3.3 but warned that further slippages in policies will result in the country being classified as a weak performer under the debt sustainability framework.

Dr Fundanga advised that Zambia should continue implementing growth oriented policies which includes support to the export sector beyond copper.

He also suggested that Zambia should explore cheaper sources of finance and maximising borrowing from concessional and semi-concessional sources while moderating commercial borrowing.

Dr Fundanga said the Zambian government must undertake fiscal consolidation to avoid rapid accumulation of debt as current debt levels are unsustainable.

Meanwhile, Economist Mr Muna Hantuba has predicted that Zambia may not be in a position to pay back the first Eurobond of US$750 million when it falls due in 2022.

Mr Hantuba said Zambia may fall to redeem the debt because the country has not yet gathered sufficient prowess to deal with debt the way debt must be dealt with.

“If you borrow to build a road, to build a bridge or a school and the bill of quantity is a million dollars, there are two ways to do that. Borrow that 1 million dollars and deploy it, conclude it within time, let it become active and let the private sector get engaged, at the end of the day, there is social economic development that goes but if out of the targeted 1 million dollars, you add in 500,000 because there some guys who are queening up for rent seeking, it means that the cost of the project has gone up by 50 percent. In private sector, the moment you move on those parameters, you will fail to pay back the debt,” he said.

He added, “Or you can do the easier one which is receive the million dollars but you digress the project by sending inky 500,000 dollars, the other 500, 000 dollars has to go to these rent seekers because they have got the right access to the bids and tenders. Then you have got a project that is 50 percent done, if it’s a road, it’s the sort you drive, it’s a 1,000 KMs by the time you come back, it would have developed potholes but unfortunately, irrespective of how much of that money was correctly deployed, it must be paid back when it is time to pay back and then you will have to go back to the private sector and tax them.”

Mr Hantuba observed that domestic borrowing has been abused to collect money and enable a certain system.

“I wish I could ask someone how the current system is working. I wish I could ask how government is financing its activities, let alone paying debts. At this moment in time, I know there is a large deficit, I hope someone can tell me how it is being financed,” Mr Hantuba said.

“When I was doing Economics many years ago, we used to call it printing money, I thought there was actually a printing machine at the Central Bank where they were churning out it out but subsequently I learnt that it is just a mechanism of using some idle cash, pump it in and lend it to Government and hope Government will pay one day at its own terms. Is the Central Bank independent? Maybe it is, my suspicion is that if it were, it would not allow a scenario where government borrows as it requires with its own terms and then come again and say we need more and you do the same.

Mr Hantuba suggested that government considers longer dated treasury bills and longer term government bonds of around 20-25 years.

“Don’t be corrupt because corruption is expensive. Don’t misapply resources, stick to the budget. If your 2017 budget says you are not going about constitution, don’t do it. If your 2017 budget does not say about appointing of extra cabinet, don’t do it. That’s what private sector hopes government won’t do. Private sector does not expect Ministry of Justice to announce expenditure of 2 million (whatever the figure is) to ask people where we should be in court or not.

Zambia’s debt that was standing at US$ 9.44 billion as at September 2016, representing US$ 46.9 percent of GDP was made up of US$ 6.7 billion of external debt and US$ 2.74 billion in domestic debt.

The country’s external debt has escalated by 240 percent in the five-year period between 2011 and 2016 from US$ 1.97 billion in 2011 to the current US$ 6.7 billion in 2016.


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