Increased debt servicing impacting national budget adversely – Mwanakatwe
By Staff Reporter
FINANCE Minister Margaret Mwanakatwe says increased debt service payments are having an adverse impact on the budget and there was a need to reduce debts to sustainable levels.
And economist Chibamba Kanyama has expressed optimism the acceptance by the government of the economic challenges and implementation of austerity measures could spur the IMF to rethink their position on the country that has slid to junk status rating by Moody’s Rating agency last week.
Mwanakatwe told a media briefing yesterday that Zambia would cancel or delay more approved project loans in a bid to reduce its fiscal deficit and reign in debt service payments.
“A cabinet meeting held on Monday took note of the high levels of debt service costs over the next three years compared with last year,” she said
Mwanakatwe didn’t identify any of the lenders or projects likely to be affected saying she would present a list of project loans in the next cabinet meeting to be considered for slowing down, postponing and cancellation.
“In doing so, projects that are of an economic nature will not be cancelled as resumption of growth is important to address the economic challenges,” she said.
She said Zambia would also urgently complete energy reforms and renegotiate unsustainable power purchase agreements so the sector does not become a liability.
Zambia’s external debt had increased to $10.178 billion at the end of the first quarter of this year from $10.05 billion at the end of 2018, Mwanakatwe announced earlier this month.
The country’s 2018 fiscal deficit stood at 7.5% of gross domestic product (GDP), higher than an earlier government projection of around 7%.
And Kanyama has congratulated government for accepting economic difficulties and instituting austerity measures to help restore Zambia’s growing fiscal deficit.
In his Facebook posting accessed by newsdayZambia.com, Kanyama said that for a while now, the message has been that all talk about Zambia’s economy was premised on negative sentiment.
Kanyama stated that investors were rational beings who seek to make decisions based on data and will hardly sway away from an economic opportunity on account of rumours.
“It is this economic data released by government regularly (Ministry of Finance, Bank of Zambia, ZIPAR) which helps investors make financial decisions,” he said.
And Kanyama has also applauded Mwanakatwe for having been upfront and liberal on releasing economic data and regularly updating the nation.
“This has been the missing link for a while and it became the reason for speculative economic sentiment,” he said.
He stated that this fresh admission that the economy is in dire strait and that urgent action should be taken was another positive step towards restoring economic confidence in Zambia.
“The only advice I give is to urge the Government to align the austerity measures towards a possible IMF programme. As things stand today, it is very hard for government to manage its own austerity as it’s like asking a patient with a foot problem to amputate self. You can only cut that far and will stop when pain is unendurable. The IMF program is very painful medicine and some of those countries that took it never fully recovered because they failed to complete the dosage or economic diagnosis were erroneous,” he said.
He added that economists in government have done pretty well in understanding the problem and have somewhat applied the Zambia plus Economic Stabilisation Programme but only in part.
“An IMF programme does not only come with the discipline of implementation of austerity but a financial redemption package too, something we desperately need,” he said.
Kanyama further said that there is also potential to unlock additional concessional packages as a result of IMF involvement.
“In any case, the decision made by cabinet yesterday is closely watched by the IMF and it may just be that step that brings government and the IMF to the negotiation table,” he said.
Moody’s investors last Friday downgraded Zambia’s long-term ratings to caa 2 or junk status from caa 1 and changed the outlook to negative from stable.
The downgrade reflects increasing external and liquidity pressures, which impairs the government’s ability to service its debt over the medium term, raising the probability of default over the near term, including a distressed debt exchange, beyond what is captured in a caa l rating.