Troubled Times in the Zambian Economy
Introduction
The Zambian economy is in the
midst of a storm, brought on by strong headwinds. It feels eerily similar to
the latter stage of the Patriotic Front regime. The dollar is breaching the K20
mark, the cost of fuel is at a record high (Nearly K30) amongst other problems.
Zambians are murmuring and questioning the efforts of the UPND, particularly
against the lofty promises they made to fix the economy. Things started well.
In 2022, the Zambian Kwacha was stronger than the Russian Ruble, hailed as one
of the best performing currencies in the world. The new government had clinched
an IMF deal, the economy was growing amidst lofty policy statements, such as to
ramp up copper production to 3 million metric tonnes by 2031. Momentum has
fizzled out, however and the outlook is greyer than it was previously, with the
Kwacha now being the 6th worst performing currency in the world.
I mentioned murmurings amongst
the citizenry. I must hasten to add that unfortunately, some of these are ill
informed. I do not say this in defense of the government, but listening in on
conversations in public places, I realize most do not understand why the
economy is struggling, highlighted by an inability to articulate root causes of
the problem, rather going straight to lambast the government.
What is Causing the Crisis
The root cause is delays in
debt restructuring. This is something that is beyond the government and solely
in the hands of our creditors, particularly China, its consortium of lenders,
and the Eurobond holders. I talked of this in my earlier article on the Monetary
Policy Committee statement. China seems hesitant to restructure Zambia’s debt under
the auspices of Western multilateral institutions. China has a mistrust for
these institutions (IMF and the World Bank). It being a new power, China is not
amongst the countries that developed these institutions. This is made all the
more severe given tensions between itself and the US, the latter being a large
shareholder in the Bretton Wood’s institutions. China is calling for the
restructuring of debt held my multilateral institutions and Non-Resident
Holders of Government debt, in Zambia. It appears they will not budge on this
demand.
The IMF and WBG (World Bank
Group) have argued this is not negotiable. The two institutions are lenders of
last resort in the international finance framework, not to mention preferential
lenders with AAA ratings. They also argue, which is true, that their loans are
concessional, i.e. at low, rather, negligible rates. The restructuring of their
debts would imply that there is a risk to their credit portfolio not being
recouped. They would either have to raise their rates or becoming increasingly
selective in the disbursements, thus defeating the purpose of their existence.
This is the impasse over Zambia.
The result is uncertainty in
markets. This is seen primarily through now perennial undersubscriptions of Treasury
bill and bond auctions. In the early days of the UPND administration the Central
Bank was turning money down through these auctions, now they can’t seem to meet
their auction amounts.
As a result, the Kwacha
depreciates and when it does fuel prices go up, spilling into prices in the
whole economy.
Where we are Going
Unfortunately, I cannot be as
optimistic as I would like to. The government hopes to finalize debt restructuring
by end of April. There is no assurance that China will join the multilateral
institutions band wagon by then, no matter how many reprimands come from the US,
the IMF and the WBG. Thus, the Kwacha may continue to slide and unless the
government begins subsidizing fuel, it is likely to continue increasing. I
think subsidies are not even a question as state coffers are empty. We are thus
in for a bumpy ride. IMF disbursements under the Extended Credit Facility will
not be disbursed until debt restructuring is finalized.
This will be particularly
damaging as the 2023 budget included receipts from the program. Could this be
the reason why doctors were left out of civil servant’s salary increments and
have since gone on go-slow? Could this also be the reason why progress has been
slow on some of the budget’s pronouncements such as the operationalization of
farming blocks? As well as other issues such as not disbursing full amounts to institutions
such as the Rural Electrification Authority?
What the Government can do
I would not be the economist I
am if I did not suggest solutions. Every problem has a solution. This is true
at individual, family, societal and national levels. We just need to expend
some energy thinking. I feel the government may need to look beyond the Common
Framework. Since its inception by the IMF, it has not resulted in any
noteworthy debt resolution. I dismiss that of Chad as it was unsatisfactory and
the country found other ways of resolving their debt troubles, specifically
through increased oil revenues at the height of the Russia-Ukraine war.
The whole concept of the
framework seems a bit farfetched. It is
a mammoth task to bring together the Paris club, the Group of 20 and private
creditors together and get them to agree to uniform debt treatment. It may even
be unfair to expect this of creditors who come from completely different backgrounds.
This may be why China is digging in its heels, in defiance of the system.
Could we try approaching each
of these creditors individually, i.e. multilateral institutions, China and
Eurobond holders, developing unique agreements with each of them. I feel this
will be better. I do not think China will ever agree to a debt treatment that
is organized by the West for Zambia. China does not always see eye to eye with
the West. However, I also know that China and Zambia enjoy long and warm
bilateral ties, from the early days of our sovereignty. It was China who built
our TAZARA rail way after the UDI (Unilateral Declaration of Independence) of
Southern Rhodesia in 1965. Even in providing us with $6 billion in debt, I assume
they meant well and at a deeper level want to see Zambia develop. However, for
so long as President Hichilema is bent on being the darling of the West, our
relationship with China may not bear the fruits it should.
Conclusion
As I wrap this up, I reiterate
my belief in the Zambian economy and its people. I believe strongly that our visions
as espoused in the 8TH National Development Plan will be met. What
we are going through is temporary, from which we will navigate a way out. It
may take time, but it will come. However, those who have been elected into
power need to begin thinking outside the box to address these problems, whatever
this will take. As we do this, I hope the government can be more independent in
its policies and not relying solely on the West. Till then. Au revoir.
Economist.
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