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Friday, 27 June 2014

Debtmania Zambia

GRZ is pressing ahead with plans to issue another $1bn international bond specifically targeted for the agriculture sector by the end of this year. Agriculture Minister Wilbur Simuusa says GRZ is currently doing the paper work for the deal. He says, the new debt is needed because, “[Government] want something specific to agriculture. All the two Eurobonds have mainly gone to ZESCO, Zambia Railways, DBZ and the like and the agriculture sector did not receive much"

The PF government has been on a borrowing spree since it came to power. So far it has borrowed nearly $1.8bn in Eurobonds alone. And there countless loans from China, Saudi Arabia and similar countries. The new proposal to borrow for agriculture more comes off the heels of separate plans for Zambia to borrow from the IMF around $1bn as part of a new SAP.

The PF's eargerness to borrow demonstrate the many challenges the country is facing. We are desperate to borrow because we have real needs. And yet, it is also clear that endless foreign borrowing is not sustainable because we can't borrow our way out of all our problems! There are at least seven reasons why every Zambian should be concerned about PF's rampant borrowing.

(1) There is no consultation. The existing Eurobonds are due to be paid back in 2022 ($0.8bn) and 2024 ($1bn). This means whoever is in charge from 2021 will immediately have to find nearly $2bn to pay back on top of all other interest repayments from loans accruing between now and then. And yet opposition political parties who may be in charge at the time are not consulted about the future. PF just borrows like it is an eternal ruler of Zambia.

(2) It is not evidence based. Securing debt is not necessarily a bad thing if we are have cut waste (see point 3) and are spending money on projects subjected to cost benefit analysis (CBA). Unfortunately, we seem to borrow at every opportunity. The causes may appear good on paper but the there's no clear assessment of how various projects compare within a given portfolio. Nor is it clear the extent to which foreign borrowing is a better approach than other policy / finance choices.

(3) It is complete waste of money. All money spent by government comes from a single national finance pot. When GRZ issues a Eurobond the money from that bond goes into that single national pot to meet the revenue gap. Politicians usually tell you that they are borrowing to fund new infrastructure. That is a lie. It is more correct to say they are borrowing to meet the revenue gap made up of many things! The true picture is that PF wants to do too many things at once. Which means that we have a short fall in funding, which means we have to issue Eurobonds for agriculture. We have decided it is better to keep borrowing than cut government waste. Basically we don't need to immediately borrow if we can cut waste and have a smaller government.

(4) It is based on flawed understanding. There are people in Zambia who think borrowed money is free. We need to realise that debt incurred today means higher taxes. So no one should be deluded that foreign borrowing is free money. We are taxing future generations by borrowing today! It is never wise to build an economy on large foreign borrowing because it makes us poorer in the long term. Especially when many of these loans go on things that are mere enablers of development with no direct short or medium term financial benefits.

(5) It is not transparent. Much of what is borrowed is never made public. Apart from the Eurobonds no one really knows the detailed terms of all other loans we have. This is especially the case for loan contracts between China and Zambia which are essentially agreed by the Finance Minister and President. This lack of transparency makes it difficult to assess how much debt is being contracted and on what terms. It also increases the risk that funds will not be used for the intended purposes and might turn out to be cases of illegitimate debt in the future.

(6) It is largely foreign driven. Many of the debt acquisitions by Government actually are forced on the Zambian people one way or another. Whether through political capture or just general ignorance of the public. This is usually done by foreign governments who lend money to Zambia to achieve their geopolitical goals. When the Chinese give you a loan to buy their fighter planes, it is usually on their terms and for their purposes. This is why Mr Zhou Yunxiao always likes to add that where money is to be spent depends on "discussion" with Beijing.

(7) Lack of oversight. Zambia's debt acquisition rests solely in PF hands and not the Zambian people. There's zero parliamentary oversight because no legal framework in form of a proper Debt Management Bill exists. Government after government has rejected it. So without parliamentary scrutiny how can the public have confidence that it is sustainable to borrow? How do they know Zambia can afford to pay back without significant cost cutting in other areas?

What is the solution?

We need an overhaul of the debt contracting system. You, the Zambian people, should have a greater say on financial arrangements affecting you, your children and your grand children who will eventually have to pay it back. There should be a halt to all external debt procurement by public bodies until that is resolved - not least because Zambia has not fully capitalised on leveraging domestic sources of revenue and is not sufficiently cutting wasteful spending.

Chola Mukanga
Economist | Consultant | Researcher
Copyright © Zambian Economist 2014


  1. I noticed somewhere a country described as a serial defaulter on its debt. But it was always someone else fault; especially the lender who was forced to accept 30 per cent of his outlay by the defaulter. Zambia must avoid that position and reign in its borrowing and spending while at the same time increasing taxes.



    You know, I can't help thinking that a lot of this scurrying for more debt has to do with the fact that President Sata is absent from the country.

    I also still can't get over the fact that the minister said 'We need something for agriculture'. A billion dollars ($1,000,000,000.-) and 'something' don't belong in the same sentence. It shows a cavalier attitude towards an incredible amount of debt.

    It also shows that they don't really have any projects to spend it on. And the feverish scrabble for this debt shows that they are going to be the main beneficiaries themselves.

    (4) It is based on flawed understanding. There are people in Zambia who think borrowed money is free.

    Like the former Finance Minister Situmbeko Musokotwane. And perhaps to a crook, borrowing money actually is free - if you have no intention of paying it back.

    1. John Banda, Kitwe:
      The key is to enact legislation to give parliament power to authorise any borrowing above a certain amount (say K500million) for each transaction and for all borrowing if the aggregate outstanding loans exceed say K30billion.


  3. Cho,

    Now we know where the money from the Eurobonds is supposed to go - TO THE MINES!

    (THE POST) Chikwanda wants govt to pay mines $600m in VAT refunds
    Edited by Chiwoyu Sinyangwe

    " The sources said the government currently did not have sufficient funds to offset the VAT refunds being claimed by mining companies.

    “The minister says the only way for the government to clear this backlog promptly is to allow Treasury access some funds from the recently-acquired US$1 billion which currently was ‘sitting’ at the Bank of Zambia. Of that US$1billion Eurobond, only US$300 million has been disbursed so far and remaining the US$700 million is still with the Central Bank.” "

    Time for a military coup?

    Why give a billion dollar to people without ideas, other than to do what they always do, which is funnel more money to the foreign owned mining companies.


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