ZAMBIA REFINES GROWTH PATH
…Mwanakatwe intent on debt reduction
ZAMBIA’S 2018 growth path must be clear of all pitfalls that could distort the economic outlay as the country embraces positive strategies to sustain an upward trend while at the same time pushing down the debt Minister Margaret Mwanakatwe has thus pledged to maintain transparency in the management of public resources. “As a democratically elected Government, we owe it first to the Zambian people to tell them the truth not just about the debt Government contracts on their behalf, but also about the state of the economy in general. “Transparency in the management of public finances will therefore be key for us to win both the public trust and stock to sustainable levels.
In this noble trajectory, Government should ensure that the public domain is replete with well-rounded information in order to effectively outsmart detractors that are armed-to-teeth with falsities.
There has been varied statistics about the country’s economic complexion, hence the imperative need for regular and much more detailed information that is easy to discern about Zambia’s standing.
In the political arena, some commentators have been flaunting erroneous figures on Zambia’s total external debt stock in an attempt to cast a negative aspersion on the economic landscape.
Newly-appointed Finance confidence of international financiers,” said Ms Mwanakatwe recently in her first statement at Finance on the country’s economy and Government reforms.
Candidly, Ms Mwanakatwe points out that potential risks in 2018 include high commercial bank lending rates and adverse weather patterns that may impact negatively on agriculture.
The lending rates at the close of 2017 rested at 24.6 per cent from the 2016 level of 29.49 per cent.
It is important to appreciate this concern because the level of lending rates is too high to support the productive and critical sectors of the economy that would want to inject more capital by borrowing.
Firms in an economy find it difficult to raise capital for growth because they cannot borrow from commercial banks which have prohibitive lending rates. In effect, the cost of borrowing is high.
Secondly, the financial sector itself gets choked with high nonperforming loans because borrowers fail to repay the money. Ultimately, credit growth is constrained.
This is more reason why the Bank of Zambia (BoZ) last week lowered the Policy Rate to 9.75 per cent from 10.25 per cent and the Statutory Reserve Ratio to 5.0 per cent from 8.0 per cent.
Such a move entails that the cost of borrowing and loan servicing will be lower while disposable income at household level will go up for individuals servicing loans.
Secondly, there will be more liquidity for commercial banks to lend out to the productive sectors, thereby stimulating growth.
The BoZ makes adjustments of the Policy Rate and Statutory Reserve Ratio through the Monetary Policy Committee (MPC) periodically.
BoZ Governor Denny Kalyalya when announcing the reductions noted that lending rates are too high to support the productive sectors and continue to constrain credit growth.
“The Bank of Zambia will closely monitor domestic and external sectors developments and stands ready to implement appropriate measures and ultimately support economic diversification and growth,” Dr Kalyalya said.
Thus Government must continue working towards encouraging growth and investment by ensuring that the cost of borrowing remains within acceptable limits.
Local investors in the agricultural sector, for instance, need access to affordable loans to finance production and attendant activities.
Farmers may need to procure machinery such as tractors, planters, ploughs and grain shellers to improve productivity and efficiency. They need affordable capital!
Other than challenges of high lending rates, Government is cognisant of the fact that the agricultural sector has had its own share of hindrances such as the delayed e-voucher system in which most farmers accessed inputs late.
Ms Mwanakatwe said: “In the agriculture sector Government is committed to resolving the teething challenges of the implementation of the e-voucher.”
Certainly, the Government will need to clean up the database for the Farmer Input Support Programme (FISP) to benefit the eligible small-scale farmers only and ensure that they receive the agriculture input well before the rainy season.
Small-scale farmers should not be perpetually on FISP; they are supposed to graduate and leave room for others to benefit from this subsidy.
The programme is designed in such a way that after every two years beneficiaries should graduate, but none of the farmers has graduated since inception in 2002.
FISP is designed to wean off farmers because it is anticipated that in two years, they should have generated sufficient income and contribute to increased household food security.
It will also be ideal for the Government to encourage and support growing of drought-resistant crops. Irrigation schemes should equally be encouraged to remedy adverse weather patterns.
The petroleum sub-sector is another aspect that requires refining to ensure steady flow of affordable fuel to support local industrial growth. The procurement process needs to be streamlined so that the ultimate cost remains within affordable levels.
Still in the energy sector, electricity remains the driving force of the productive sectors and has to be constantly supplied without any intermitted outage.
Yes, the Government has pledged to implement measures aimed at strengthening tax revenue collection this year while at the same time improving the business environment to give business a greater chance of survival.
It is also envisaged that Government will continue with legal reforms in public financial management this year and beyond as a measure to improve service delivery. Reforms will be carried out on the Zambia Public Procurement Act, Insurance Bill, Pensions and Social Security Bill.
The Planning and Budgeting, Loans and Guarantee (Authorisation) Act will also be affected in the legal reforms.
“Procurement reforms will continue to control wastage and overpricing. The amendment of the law will be undertaken to introduce reference pricing and enhance preferential contracting for locals,” Ms Mwanakatwe said.
While undertaking practical growth measures, the Government will prioritise slowing down of debt accumulation and boost transparency in debt contraction.
Debt management has been a contentious issue with opposition
“In the agriculture sector Government is committed to resolving the teething challenges of the implementation of the e-voucher.”
pad party leaders taking an onslaught on the Government. In particular, politicians and other interest groups have been making regular reference to the three Eurobonds that were contracted by PF Government. The first Eurobond was issued into in 2012 worth $750 million and s. was channelled to infrastructure is development in health, education and energy sectors including road construction and rehabilitation. Second Eurobond was issued in 2014 to the tune of $1 billion while the third worth $1.25 million was issued in 2015. The
bonds have interest pegged at $40 million, $85 million and $112 million per year and are due in 2022, 2024 and 2025-27 respectively.
In an effort to bring down the debt levels, Zambia is developing a financial profile to address economic development without compromising debt sustainability. In fact, former Finance Minister (now at Works and Supply) Felix Mutati had introduced the Sinking Fund with an initial allocation of $20 million to address the repayment of the Eurobonds. The new Minister of Finance e says she is intent on operationalising ric the Sinking Fund by periodically setting aside money for gradual repayment of the debt. y It is expected that Government will be consistent with the Sinking Fund so that the bonds are serviced within the due period so that the country does not fall into an abyss of an irredeemable debt trap. of other This interventions. has to be done along with In the meantime, Zambia has projected to reduce the fiscal deficit this year to 6.3 per cent from last year’s 7.0 per cent while in 2019 and 2020 it is envisioned to further decrease to 4.3 per cent and 2.6 per cent respectively. This inevitably means that the country must accelerate economic growth through the critical sectors of the economy while at the same time addressing debt management. This is no easy task though.
to To be realise prudent this management feat, there has of public resources and steadfast harnessing of critical sectors of the economy through the private sectors. There also has to be consistent policy direction.
Apart from the Eurobond, Zambia’s external debt is from Chinese State companies for construction of roads, airports and power plants.
Last year, Zambia’s external debt stock stood at US $7.2 billion from US $6.9 billion in December 2016 while the domestic debt was at K38 billion. Foreign reserves stood at US $2.4 billion, translated to around 3.3 months import cover. Overall, are still economic buoyant fundamentals with kwacha exchange rate standing at K9.7 per US $1 while economic growth this year has been projected at 5.0 per cent. Inflation is still in single digit.