WHAT HH’S FIRST BUDGET WILL NEED TO IMPRESS THE IMF
Upon his return from the United States last month, President Hichilema explained that part of his mission in the country had been to engage the leaders of the IMF and World Bank in order to “restore credibility” for Zambia, particularly with regards to the enormous foreign debts.
Since then, the IMF has conducted a virtual staff visit to Zambia, which wrapped up on October 1st. Following the trip, the Fund’s Mission Chief for Zambia, Allison Holland, observed that in light of the “deeply challenging macro-economic environment”, HH’s government would need to take “urgent steps” to restore sustainability.
The government’s inaugural budget, which is due at the end of this month, provides the ideal opportunity to lay out which of these steps it will take. This budget will be vital to achieving successive administrations’ goal of a $1.3 billion bailout package from the IMF, as well as fulfilling HH’s personal election promise to put Zambia back on the road to financial prosperity. While it will certainly be no mean feat, this budget should ideally tackle three main issues: high debt, government waste, and a lack of private sector confidence.
TACKLING THE DEBT CRISIS
Under the previous administration Zambia’s debts ballooned: growing from 66% of GDP in 2011 to 113% by 2021. Since President Hichilema took office, a more transparent audit of the government’s accounts shows that Zambia owed $14.3 billion to foreign lenders – many of them Chinese state institutions.
In the past the IMF has been clear that Zambia must control its rampant borrowing if it is to stand any chance of receiving a bailout package. This budget, therefore, must spell out strict limits on future government borrowing, which should never be used to pay for day-to-day spending.
Furthermore, the president will have to sit down with his foreign creditors – especially the Chinese – in order to rebuild Zambia’s credibility and negotiate as favourable interest rates as possible. By showing that Zambia can once more be held to account, President Hichilema will help to bring the debt situation back under control.
ROOTING OUT CORRUPTION AND REIGNING IN SPENDING
To avoid exacerbating the debt situation by borrowing more, President Hichilema will also need to conduct a review of government spending, as well as prioritise regaining any revenue that has been lost through corruption.
As things stand, the government spends roughly 40% of its tax income on salaries for civil servants – an unacceptable figure for any modern nation. The budget, therefore, will need to spell out means to streamline the work of government, as well as mechanisms to help civil servants be more efficient.
President Hichilema has himself led the way in terms of government frugality, famously flying to New York in a commercial airliner last month and bringing with him only a small retinue of staff. This kind of restraint will need to be exercised across the entirety of government if the country stands any chance of reducing its debt.
Furthermore, the government urgently needs to take a firmer stance on corruption; translating its tough words into action. When President Hichilema first took office he told reporters that the country’s coffers were “literally empty” and that PF cadres were still drawing government salaries and trying to hide their cash overseas. While the president has since pledged to take a “zero tolerance” approach to corruption, there have been few high profile arrests for this kind of behaviour.
RESTORING FAITH IN THE PRIVATE SECTOR
Finally, it is not enough for the budget to merely reduce borrowing and cut down on spending. The government will also need to find ways of increasing its revenue if it is to sufficiently impress the IMF ahead of a bailout.
For this, President Hichilema should turn to Zambia’s wealth of natural resources, and in particular copper. Under the Patriotic Front the government soured relations with the country’s copper producers, buying out Mopani Mines from Glencore and forcing Konkola Copper Mines into liquidation.
Since then little has been done by the new administration to improve these relations and boost copper production. Mopani, for instance, is still lacking a private backer to make the mine sustainable, despite the government taking on some $1.5 billion in debt to purchase it in the first place. KCM, meanwhile, remains embroiled in an arbitration feud despite the fact that a tribunal in London ruled that ZCCM was in breach of its shareholder agreement and that the state-appointed liquidator should be discharged immediately back in July. The urgency of a speedy resolution has since been further highlighted by the arrest of the liquidator, Milingo Lungu, on charges of theft and money laundering worth millions.
All the while global copper prices continue to climb but productivity at the country’s largest mines remains low. Since the government effectively took over production at KCM in May 2019, production has slumped by some 70%. This kind of missed opportunity is unacceptable, particularly in a country trying to climb out from under a mountain of debt.
Prior to his budget this month, President Hichilema should pledge to resolve disputes in the sector as a matter of priority so as to secure jobs, investment and the revenues his administration will need of it is to avoid further borrowing. He will need to rebuild trust with both the private sector and employees so that the sector delivers mutual benefits for all. To achieve this he must use the budget to promise cooperation with mining companies, as well as ample employment opportunities for skilled workers throughout the value chain and fair remuneration. In this way, exports will soar and the government’s tax revenue will rise dramatically.
This kind of trust with the private sector will doubtlessly be difficult to rebuild, but as a former businessman President Hichilema has promised numerous times to establish a stable regulatory environment in Zambia to help companies grow. If he can signal this in his inaugural budget, as well as provide measures to clamp down on high rates of borrowing and spending, then his government might stand a chance of securing a brighter future for Zambia.