Lusaka, February 13, 2020
Why is this important for you?
In any economy consumers are most directly affected by increases in the inflation rate which currently sits at 12.5 percent. Unless the government is able to undertake measures to put the economy back on the right track such as addressing the growing debt burden and reducing domestic arrears we will see further increases in the cost of living and a further decrease in the government support to social services that many low-income consumer are dependent on.
Highlights
- Zambia’s is currently facing challenges of low economic growth, high debt levels and income inequality
- Zambia’s increased external debt of $11.2 billion will result in the increasing expenditure on debt servicing further squeezing discretionary spending
- Zambia urgently needs to secure an IMF loan to help re-establish its credibility on the international market.
Statement
On Tuesday, February 12 the Minister of Finance addressed the public with the current state of the economy and identified low economic growth, high debt levels and income inequality as major challenges facing Zambia at the moment. Indeed, all of these challenges are interlinked but underpinned by Zambia’s growing debt which is increasingly becoming an issue of concern for ordinary Zambians.
The Minister did indeed recognise that the current debt problem is a major concern and our research has indicated that it is also a concern for ordinary Zambians. According to a nationwide survey on citizen’s perspectives on public debt, 86% of the respondents indicated that they are concerned that the rise in public debt is worsening the economy. With the stock of external debt increasing to $11.2 billion and domestic debt (Government securities + arrears) increasing to K106 billion this placed the country in a precarious position. The resultant effect is that the increasing expenditure on debt servicing and salaries is leaving the Government with decreasing discretionary spending currently estimated at about 10 percent. Against this background the Minister indicated that we can expect economic growth to increase to above 3 percent in the year of 2020 and the medium term, however given our performance over the past few years it is unclear how the this will be achieved. It is worth noting that according to the IMF, Zambia’s real GDP growth for 2020 was projected at 1.7 percent.
Considering that the poor and vulnerable in society are those most impacted by difficult economic conditions, Government’s commitment to ring-fence social spending was welcome but given its underallocation last year, it is important to actually implement that directive. Debt servicing was budgeted at ZMW 23, 573,355 in 2019 and this increased to ZMW 33,725,643 for 2020 representing a 43% increase in debt servicing costs. In previous years we noted that increased debt service payments resulted in a redirecting of funds from social spending with the education sector being one of the most negatively affected sectors.
In addition to implementing a debt management approach which will seek to reduce external debt by USD5 billion, it is indeed imperative that the Government works to clear all domestic arrears in order to provide the private sector with the much-needed liquidity to allow it to contribute to economic growth. The Government should also continue to engage with the IMF. Indeed, Government needs to demonstrate commitment to prudent financial management and reaching sustainable debt levels. Urgently securing an IMF deal is becoming increasingly important as an IMF deal would also help Zambia re-establish its credibility on the international market
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For further information please contact: The Centre Coordinator, Consumer Unity and Trust Society (CUTS), House No 32, Plot 407, Kudu Road, Kabulonga, Lusaka. Email: lusaka@cuts.org or phone: 097 8055 293.
The Consumer Unity and Trust Society (CUTS) International, Lusaka in an NGO that was established in 2000 to function as a center for action (policy) research, advocacy and networking on issues of trade and development, competition policy, investment regulation and consumer protection. The mission of the center is to function as a resource, co-ordination, as well as networking center, to promote South-South cooperation on trade and development by involving state and non-state actors (NSAs). CUTS implements four different strategies in its work: Research, Policy Advocacy, Capacity-building and Networking