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Tuesday, 16 April 2013

Forever in debt

Finance Deputy Minister Miles Sampa recently signalled that Government intends to borrow more from the international markets" :
“...We are sitting around 30 percent of GDP ratio and we would be comfortable to increase that to around 45 percent of GDP and we would be going back to the international market as soon as all arrangements are put in place. Our debut issuance was very successful, remember it was oversubscribed and we believe the interest in Zambia among the foreign investors is still high and we want to cash in on that...We should not be scared to borrow as long as we are able to pay back...We have said no to increasing taxes for our people because we are a caring government. So taxes won’t go up and our only choice is borrowing from the market. There is no country that does not borrow, the USA, Japan, name them, they all borrow to develop but what is important is paying back...”
There's no doubt Zambia is able to borrow more. But the borrowing is being done without Parliamentary oversight and general scrutiny. If we had a proper Debt Management Bill in place then the situation would be different. Right now the Government has not published its Debt Sustainability Analysis. So how do we know it is sustainable to borrow? How do we know we can afford to pay back without significant cost cutting in other areas? I have previously touched on this issue here

Sampa also has a poor understanding of economics. Debt incurred today means higher taxes tomorrow than would have been the case. So to say we don't want to tax people just does not make sense. You are taxing future generations by borrowing today! How do you think that debt will be paid back? Of course this argument does not strictly apply to domestic borrowing (an issue of much debate in Europe), but it certainly applies to external debt. This is very cardinal. It is never wise to build an economy on large foreign borrowing because it makes us poorer in the long term. 

What is clear is that when Sampa thinks about "people", he only thinks about voters in 2016. He does not really care about Zambians living beyond 2016 - for now. If large debts are incurred by Sampa and his friends at the Ministry of Finance, that's for future governments to worry about. But as citizens we must care because it is us who will still pay it back. Our interests diverge from Sampa's interests and therein lies there problem.

Copyright © Zambian Economist 2013


  1. In my opinion for as long as we have a weak parliament that just rubber stamps initiatives from the executive by virtue of them eating from both hands, it’s a lost cause. Furthermore, when exactly do we as citizens engage with lawmakers to voice our concerns about various policies such as sovereign debt and our ability to repay? The majority are still stuck on meeting basic needs which are temporarily eased when elections roll out around.

    While red herrings like constitution conference are thrown at us, Miles Sampa goes unchallenged when he talks about putting Zambia back on the debtor’s merry go-round.

  2. For the longest time, my fear was that our population was ripe for abuse by those in power because people don't understand the workings of government. But that argument no longer holds any water, there is enough of us that understand enough, that need to step up to our leadership and demand accountability.

    To throw the US as an example of successful borrowing is stupid, the US is up to the ears in debt and struggling to find answers to reign it back.

    Our current behavior is akin to someone without a job trying to use a credit card to pay for a flat screen tv. Yes you can swipe get credit advanced, but you have nothing going that assures you can payback the debt on the credit card and you are using that credit to finance something you want and not need.


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