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Thursday, 9 June 2011

Is Zambia Heading for Another Debt Crisis?

Insightful observations from the JCTR. Zambia's "winner takes all" election syndrome is threatening a mounting fiscal and debt crisis as the current administration abandon any shred of prudence and circumvent established spending commitments to spend all to stay in power. The MMD appears keen to sacrifice national finances at the electoral altar.  What is clear is that whoever wins these elections may well inherit large fiscal deficit unless there's renewed goodwill from the donor community to mend the fences. I suppose if there's any  excuse for MMD is that it may be responding to higher spending commitments from the PF, which may have created an "arms race" effect or "race to the bottom" of common sense. In truth, I think it is the credible threat of a likely electoral defeat that is leading to these problems. When are our politicians going to govern for the long term and not the immediate security of their offices? 

While spending K1.3 trillion (approximately 6% of 2011 budget) on road works for Kitwe and Lusaka as was recently announced by the President is a welcome move, the mode of financing these works is of great concern, says JCTR. Since the K3.1 trillion road allocations in the 2011 national budget did not initially include these new road projects but others such as Mongu-Kalabo road, Siavonga – Sinazongwe road etc; government will have to borrow or reallocate resources from other priority arrears to complete these new projects. Even though government is saying these projects will be financed by mining tax arrears and loans, the K555 billion tax arrears and the foreign and domestic loans of 2% and 1.4% of GDP respectively, provided for in the 2011 budget are not sufficient to pay for these mega trillion projects. Government will therefore have to borrow beyond the budgetary ceilings which will certainly exacerbate the Country’s debt burden that lately has been on the increase.

Maintaining fiscal prudence as elaborated in the 2011 budget and Sixth National Development Plan is essential for continued stable macroeconomic environment and translation of macroeconomic gains achieved so far into tangible benefits, says Sydney Mwansa (Programme Officer – Economic Equity and development). However, recent developments don’t guarantee this process. More so, government’s promise to buy all the bumper maize this year entails additional borrowing. The 2011 budget has provided only K1.3 trillion for this exercise and yet according to media reports, government will need to spend not less than K2 trillion to buy all the maize. Government has already borrowed huge loans for contentious projects like mobile clinics and hearses and any further loan contraction will just destabilize the economy. It will certainly crowd out the private sector (domestic borrowing) as it exerts upward pressure on the bank lending interest rates and creates inflationary pressures.

Within the last five years following debt cancellation in 2006, the country’s external debt stock has more than doubled; rising from US1.5 billion to US $3.4 billion (2009) out of which public debt has risen from US $700 million to US $1.5 billion during the same period. At this rate, it will not be long before the country returns to the unsustainable debt levels of the pre- debt cancellation period. It should be noted that debts are public resources as they are contracted on behalf of the Zambian people and therefore people should be consulted through their representatives who are the members of parliament. Government should be more transparent in the way it contracts loans to avoid another debt crisis. For example loan amounts, conditionalities attached to the loan, loan repayment period and the interest payable on the loan must all be publicly disclosed. This is the only way to promote transparent and hold government accountable.

Zambia has experienced debt crisis before and its economic and social scars are still visible all around us. Debt has serious implications on poverty and sustainable development of the country. With the debt reaching as high as US$7.1 billion prior to its cancellation in 2006, government could hardly provide social services as resources were diverted to debt servicing. This experience should be a constant reminder to government and all of us to ensure that the country does not fall back into another debt trap. We therefore call for restraint in the way government contracts loans and also reiterate our call for the enactment of a debt management bill that will curtail the excessive loan contraction powers that govern currently enjoys, added Sydney.

For more information, contact the Economic Equity and Development Programme at the Jesuit Centre for Theological Reflection, P. O. Box 37774, Lusaka, Zambia; Tel: 260-1-290410; Fax: 260-1-290759; E-mail:; Website:

1 comment:

  1. i think this was a good article. it also shows what it means when PF says its expanding gov spending. it tells us also one thing than politicians will never really care about long term goals. if they did they would have long raised alarm about the raising debt and this is what we would be talking about during the campaigns.
    having said this currently MMD and not PF has btter ideas about gov spending. PF has no focused plan to reduce this debt. in fact they don't talk about it and my fear is that with their current plans of expanding gov spending we are in trouble


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