IMF SAYS ZAMBIA’S DEBT RISING AT UNSUSTAINABLE PACE
THE International Monetary Fund (IMF) has observed that Zambia’s public debt has been rising at an unsustainable pace, leading the country to a high risk of debt distress.
As of October 2017, Zambia’s external debt stood at US$7.6 billion while domestic debt was at S$4.5 billion.
According to the fund, Zambia’s public debt whose servicing was high at 20 percent, was driven by large fiscal deficits and was subject to significant exchange rate risks.
IMF resident representative, Alfredo Baldini, warned that at the pace at which the public debt was rising, it risked shooting up towards 90 percent of the Gross Domestic Product (GDP) over the next years if not tackled adequately.
“With absent reforms, the outlook for Zambia’s public debt will be difficult. Zambia needs to tackle fiscal consolidation more and more,” he said.
Dr. Baldini was speaking yesterday in Lusaka at the presentation of the “Fiscal Adjustment and Economic Diversification in Sub-Saharan Africa: lessons for Zambia.”
Dr. Baldini also observed that the current direction of policies was one that imperiled the hard won development gains of recent years.
On the other hand, Dr Balding said growth in the Sub-Saharan Africa for 2017 was projected to be at 2.6 percent and 3.4 percent in 2018 from 1.4 percent recorded in 2016.
“Zambia has a moderate rebound although the growth remains subdued. Exchange rate pressures have eased. There is a lot of work to be done in Zambia on fiscal deficit,” Dr. Baldini said.
And Zambia Institute for Policy Analysis (ZIPAR) research fellow-public finance, Shebo Nalishebo, warned that without reform, total public debt was projected to exceed the benchmark level of 56 percent of GDP associated with heightened vulnerabilities for medium performers.
Mr. Nalishebo explained that fiscal adjustment was needed to stave of an imminent crisis such as the one experienced in 2015.
“Public debt has been rising at an unsustainable pace and Zambia is now at high risk of debt distress. Static revenues and unsustainable public spending (as interest payments, inefficient public investments, and subsidies take up an increasing high share of the budget) contributed to the high fiscal deficit,” he said.
Meanwhile, ministry of Finance permanent Secretary, Mukuli Chikuba, said Government has put in place measures aimed at reducing the deficit to around 3 percent of GDP by 2020, this creating room for reduced borrowing and expenditure to support the economy.
Mr. Chikuba explained that the measures would also slow down the pace of borrowing through suspension of non-concessional borrowing.
“A new debt strategy that aims to reposition debt has been out in place and published. As mentioned the law will be revised to ensure enshrinement in law of the commitment of the Government to have borrowing undertaken transparently,” Mr. Chikuba said.
He, however, said the fiscal deficit was expected to reduce over the medium term with fiscal prudence given the new laws that would plug expenditure leakages.
He also said arrears were expected to be halted and fall into 2019.