Zambia’s Domestic Debt and the Way Forward
Economy, Opinion

Domestic debt impacts negatively on the private sector which is supposed to fuel the economy, as observed in the developed world. Domestic debt makes borrowing expensive as a result of the relatively narrow investor groups in Africa. The Zambian domestic debt is of concern to the new government. In a Ministerial statement, the Minister Dr Musokotwane acknowledged the detrimental nature of domestic debt. He stated in his September 2021 statement, “..but there is also substantial domestic debt including arrears to suppliers that the government must deal with. This of course makes the situation worse. Very soon, I shall be returning to the House to provide a comprehensive statement on the national debt and measures being undertaken to deal with it.”

He added, “Let me elaborate on one of the effects of excessive borrowing, namely inflation. It refers to the ever continuing rise in consumer goods and services You will recall madam that for many years, inflation was below 10 percent. However, as at end-August 2021, inflation was recorded at 24.4 percent which is too high and way above the 6.8 percent target band.”

Domestic debt has been one of those impediments identified by the MoF as a solution, the Zambian government has engaged in talks with the International Monetary Fund (IMF). In an article titled “Musokotwane, IMF chief meet,” in the Zambia Daily Mail it was stated that Zambia will borrow from the Bretton Woods institution in order to restructure debt. That also includes external debt, but the focus here is on domestic debt. Zambia received the US$ 650 billion IMF Special Drawing Rights (SDR) general allocation.

According to the Zambia Daily Mail in September 2021, the Zambia Chamber of Commerce and Industry (ZCCI) reacted in a statement, “In line with these engagements, we call upon the new government to call for additional submissions towards the 2022 national budget to allow industry and the Government revisit the direction of all economic sectors. Further, ZCCI is confident the new government will firmly secure an International Monetary Fund economic programme and its associated US$1.3 billion loan or more before the end of 2021 or within the first quarter of 2022.”

The MoF’s website elaborates that there was a 10.46 percent increase in the stock of domestic debt as at the end of March 2021. That is by analyzing the first quarter 2021 economic review. Stocks of government securities were at K143.837 billion while at the end of December 2020, the figure stood at K130.214 billion. The increase was a consequence of government borrowing in order to acquire farmer inputs for the 2020-2021 farming season.

The second quarter 2021 economic review highlights an increment of 25.31 percent in the stock of domestic debt occurred as at the end of June 2021. Stocks of government securities stood at K180.24 billion while at the end of March 2021, it was at K143.84 billion. The increase was attributed to an increase in government borrowing for purposes of acquiring farmer inputs for the 2020-2021 farming season.

The mid-year economic report shows verified domestic arrears excluding VAT refunds and personal emoluments increased by 27.31 percent to K30.6 billion as at end of March 2021. As at the end of December 2020 the figure was K24.0 billion. The increase was caused by an accumulation of capital and road projects related arrears.

The position of the MoF is to transform the economy, expand it and create more jobs for the citizens. However, the government needs to handle the debt situation. President Hichilema acknowledged this in his inaugural address when he said, “Over the last decade, the debt situation has become unsustainable, reducing the country’s capacity to invest.”

The Lusaka Times on August 30, 2021 carried an article in which prominent Economist, Yusuf Dodia, was critical of the IMF and advised against getting a loan. He said, “Currently, we are exporting about 40 million dollars of copper a week. The loan from the IMF is equivalent to one month’s copper exports.” That was a contrast to Dr Musokotwane’s stance whose words were, “Yes it makes sense to get credit from the IMF because financing will come in cheaper and we will be able to assure the creditors and investors who would like to invest in Zambia as the IMF will give them confidence.”

It can be seen that domestic debt is a hindrance to a country’s development and the growth of the private sector. Efforts by the government are being made to reverse domestic debt’s adverse impact, for example by seeking loans from the IMF. This stance is in contrast to that of some stakeholders who are against getting more loans from creditors. However, economic tools and functions will continue to provide fair analysis of Zambian economic trends as a way to help reflect on the economic outlook.

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