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Tuesday, 23 March 2010

Parliamentary Question (Government Debt)

A worrying exchange in Parliament over the issues related to debt. After Ms Kapwepwe (Deputy Minister, Finance) failed to answer the questions properly,  Mr Daka (Agriculture Minister) run to the rescue. It appears the government only policy on debt is based on sakism (the thinking advanced by certain politicians that just because others are doing it, we should also do the same thing. Other people's actions are the best reasons for your own actions). In the present case, Mr Daka believes our debt level are okay because others have higher debt, never mind that he has not controlled for all other factors. He also thinks as long as donors are willing to lend us money, that must mean we can borrow. Shocking statement when the recent credit crisis demonstrated the "irresponsibility of lenders". Sadly, MPs failed to demand the obvious - consultation on the so-called debt strategy approved by Cabinet.

Mode of Contracting Debt by Government Since 2002, Oral Answer (323), Edited Transcript, 10th March, 2010 :

Mr Chisala (Chilubi) asked the Minister of Finance and National Planning:
(a) which of the two modes of borrowing below the Zambian Government had used frequently to borrow since 2002: (i) bilateral; and (ii)multilateral; and (b)what the current external debt accumulated by the Government was.

The Deputy Minister of Finance and National Planning (Ms M. C. Kapwepwe): Mr Speaker, since 2002, the Government has borrowed more frequently from multilateral than bilateral institutions. As at end of December, 2009, the Government borrowed twenty-four times from the multilateral institutions compared to five times from the bilateral institutions. Mr Speaker, the stock of Government external debt outstanding as of 31st December, 2009, was US$1,159.9 million, broken down as follows: (i) bilateral US$300,472,366.79 (ii) Multilateral US$716,073,440.28 (iii) Supplier’s Credits US$139,680,896.93

Mr Chisala: Mr Speaker, the answer given by the hon. Deputy Minister of Finance and National Planning reveals that Zambia is in serious problems of external borrowing. This being the case, how does the Government intend to solve this serious problem of external borrowing?

Ms M. C. Kapwepwe: Mr Speaker, categorically correcting the impression, we are not in a serious position as regards debt contracting, firstly, because We have a debt strategy in policy which was approved last year by Cabinet which ensures that we monitor the kind of debt we are contracting. Secondly, we have debt sustainability review in conjunctions with other institutions like the International Monetary Fund (IMF) and World Bank. Given our position regarding our revenue, both domestic and otherwise, we are in a position to service the debt that we contract. We are well below the normal levels of contraction of debt for a country such as ours.

Mr Milupi (Luena): Mr Speaker, since 2005 when most of our external debt was forgiven leaving only US$500 million, the debt has since accumulated to over US$2 billion. At this rate, how many more years will it take before you reach US$7.2 billion which was the debt before forgiveness?

The Minister of Agriculture and Co-operatives (Mr Daka): Mr Speaker, it is not true that the debt has surpassed a mark of US$2 billion. Today’s debt is US$1.2 billion for Zambia. If you look at the region, Tanzania is at US$3.6 billion …

Hon. Opposition Members: Not Tanzania iwe, this is Zambia!

Mr Daka: … Kenya is at US$6.8 billion. Today, I signed an agreement with Belgium which has written off US$7 million which we should have started paying next year. Therefore, I feel that this country is doing very well and that we cannot develop this country without borrowing. No businessman has ever developed without borrowing and we are borrowing this money at a reasonable interest rate of 0.75 per cent. The local interest debt is about 15 per cent and if we had to borrow locally, we will be paying 15 per cent, but we are borrowing at 0.75 per cent. Nobody runs a business on his own money.

Mr Ntundu (Gwembe): Mr Speaker, two or three years ago, when our position was around US$7 billion, the Government stated that it would ensure that borrowing is reduced. Now, the rate the debt is accumulating, I would like to find out whether the Government’s position has since changed or its position is to continue borrowing?

Mr Daka: Mr Speaker, our debt has never reached that level from the time some of it was forgiven. Now, if my colleague was in our position as a Government, would he sit idly without developing the hydro-electric power that we need to generate the businesses that we want, today, no? The answer lies in borrowing. A good example is that of the Arcades Shopping Mall or any other business, they are borrowing, but it depends on the interest rates that they attract. We have to borrow either multilaterally or bilaterally at the lowest interest rates. We do not have capacity to manufacture money to generate business in Zambia. That is why we have to borrow to sustain economic growth.

Mr Mukanga (Kantanshi): Mr Speaker, according to the hon. Minister, Zambia is within the normal levels of borrowing. What are the acceptable levels of contracting debt for a country like Zambia?

Mr Daka: Mr Speaker, the normal levels of contracting debt are the ones that we are at, today. In 2009, this Government looked at the policy of borrowing. If we had to borrow under the bonds from Bank of Zambia, it would attract interest of 15 per cent. The same applies to borrowing from commercial banks, today. At the moment, we are paying almost nothing. We only pay back the principal amount borrowed in order to increase generation of power that we require to work on projects such as the Nkana Water and Sewerage Company and sinking of boreholes. If we borrow for consumption, that is something else, but we borrow for production. That is what this Government is doing.

Mr Imenda (Lukulu East): Mr Speaker, much as we appreciate borrowing, is the hon. Minister aware that it took us twenty-seven years to accumulate US$7 billion, and yet under five years, we have accumulated US$1.2 billion. Is the hon. Minister mindful of the fact that we are gradually falling into a debt trap?

Mr Daka: Mr Speaker, the hon. Member should be aware that this country has only borrowed US$1.2 billion compared to the US$3.6 billion by other countries. For example, Kenya has a debt amounting to US$6.6 billion. We must have a yardstick and not say we are falling into a trap. Which trap is this? It is either we develop or not. If the hon. Member was in power, would he not give this country the necessary impetus to inject money into development?  The hon. Member should not fear the unknown. There is no debt trap. We have to develop this country by constructing roads, building schools and managing the Fertiliser Input Support Programme (FISP). We need to develop a lot of things, but we are not going to sit idly until you start blaming us that we are not doing anything.

Mr Kambwili (Roan): Mr Speaker, for the sake of the nation, could the hon. Minister explain the advantage of borrowing bilaterally as opposed to borrowing multilaterally as we have borrowed five times from the multilateral institutions and twenty-four times from the bilateral institutions.

Mr Daka: Mr Speaker, hon. Members should understand that there are many countries with large debt. For example, we have the Zambia-Belgium bilateral debt. So depending on the interest rate, all the money is good as long as it is meant for a good cause for this country.

Mr D. Mwila (Chipili): Mr Speaker, I think our concern is on the reduction of external borrowing. The Government promised that it would reduce on borrowing. Whilst we appreciate that we have to continue borrowing, when is the Government going to reduce on external borrowing?

Mr Daka: Mr Speaker, we have reduced on borrowing. That is why there is a borrowing policy. I stated here that we looked at the borrowing framework in October, 2009 and I do not think we have increased the levels of borrowing. We are consistent with the projects that we have.

Mr Mushili (Ndola Central): Mr Speaker, I agree with the hon. Minister when he says that there is nothing wrong with borrowing and investing in productive sectors. Do we have the capacity to pay back? What guarantee can this Government give us that we have the ability when we do not have the money as a matter of fact?

Mr Daka: Mr Speaker, I would like to thank the hon. Member for raising this question. He is a very good businessman. This Government has the capacity to pay back. The confidence that the multilateral or bilateral donors have shown is demonstrated in what, for instance, Belgium has done, today, by cancelling our debt before we even start repaying it. Mr Speaker, since we are in charge, we are able to determine the levels of borrowing.

Mr Nsanda (Chimwemwe): Mr Speaker, all the countries that we borrowed money from had to write off the debt. What guarantee do these same countries have that Zambia will pay back if she borrows again?

Mr Daka: Mr Speaker, the fact that they are able to borrow us more money, ...

Hon. Members: Lend.

Mr Daka: ... is a sign that they have confidence in us. The highest interest rate that we are paying on these loans is 2.2 per cent and what we have contracted is below 0.75 per cent. The management of borrowing by this Government is very prudent.

Dr Kalumba (Chienge): Mr Speaker, can the hon. Minister confirm to this House that, in fact, the accession to the level of Heavily Indebted Poor Countries (HIPC) was based on an assessment of Zambia’s capacity to continue meeting its external payment obligations in terms of debt?

Mr Daka: Mr Speaker, I would like to thank the hon. Member, who is a former Minister of Finance and National Planning, for giving me more ammunition to answer the question … the questions that the hon. Members have raised. We are confident that Zambia is not the only country that has been borrowing, as there are typical examples that I can show. Mozambique’s debt is 1.8 billion escudo, Kenya’s debt is 6.8 billion shillings and Tanzania’s debt is 3.8 billion shillings. Therefore, I do not understand why the hon. Member has said that our debt has grown out of hand. We have to borrow in order to continue developing this nation. We do not have the self-generating power to create money without necessarily borrowing at the current concessional rate.


  1. Wow! What an interesting exchange. It's completely disheartening to see the deputy minister of Finance fail to answer simple questions. Our leadership has obviously learned nothing about irresponsible borrowing from the current economic crisis. How isolated are these people to be so ignorant?

  2. Borrowing as such is not bad provided that the use to which it is put generates sufficient profit to pay back the debt. For example, for hydroelectric plants that charge their customers a rate high enough to cover its operating costs and pay off its debt. The problem arises when the debt is incurred for uses that are not able to service that debt.

  3. 'Honorable' Daka has changed his story 3 times in a matter of minutes?

    First he says that Kenya's external debt is $6.8bn then $6.6bn and finally it is Kenya Shillings 6.6bn!!

    Are our MP's so dozy that they can't pick up on this and interrogate further?

  4. Anonymous,

    Well spotted!


    On a serious note, this is actually misleading Parliament. The speaker can raise sanctions against the relevant MP if a member of public or another MP raised the issue, retrospectively. This is why formal transcripts are published to ensure Parliament is not being mislead by the likes of Mr Daka.


    I can see where you are coming from with the debt for infrastructure argument. It may well have some basis but the fundamental problem for Zambia is lack of an agreed strategy on debt. KK borrowed for infrastructure too and we ended up with $7bn+ because the fundamentals did not support such aid for infrastructure. Also the rate of borrowing was high. So my call is for agreed rules of the game, not mere mantras of "we are borrowing for infrastructure".

  5. Delarue,

    It appears as though the leaders we elect to represent us in critical issues such as the maintenance of external debts are not fit to be in such positions.Honestly, why should we be arguing about how much we are cabale of borrowing, when we should firstly be acknowledging the huge debts which have been writtern off due to the fact that we were unable to pay back. Besides this, there is a lot of missappropriation of such funds. Please can we lot into such matters because this is what's leading to Donors and other external financial institutions rejecting our proposals which require funding.We are very good at such, but once aid is given,these funds are not put to good use forgetting that the funds they are pocketing, have an interest attached to it.

  6. Hi everyone,I'm 'anonymous' above.

    Chola, I'm interested in taking this further. The accumilation of unsustainable levels of debt is something I feel passionate about trying to stop.

    Can you let me know how I might go about highlighting the holes in Mr Daka's responses?

  7. asowden,

    The easiest way is to write directly to the Clerk.

    She is very efficient and she will take on the matter.


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