ZAMBIA in the coming months faces a “real risk” of resorting to print money so as to artificially meet its financial obligations, according to former finance minister Dr Situmbeko Musokotwane.
In a write-up titled ‘Zambia’s debt crisis: watch out for high inflation’, Dr Musokotwane, who is Liuwa UPND member of parliament and the opposition party’s chairman for economic affairs and finance, observed that Zambians had already been stressed by rising prices, deteriorating business climate, stagnant incomes and yet “facing numerous new and increasing levy payments to the government.”
He said delaying salaries might therefore lead to labour discontent, which the government was unlikely to want to see as “we approach the election year, 2021.”
“The chances are therefore high that the government could start defaulting on some loans and obligations so as to meet local needs. But the highest and most devastating of all risks facing our country right now is that the government may start to print money so as to artificially meet its financial obligations,” Dr Musokotwane noted.
“Such a situation has materialised before in this country and in countless others who faced similar quagmires. As everyone knows, taking the route of printing money quickly leads to loss of value in our Kwacha and rapidly rising inflation akin to what happened in Zambia during the 1980s and the 1990s.”
He cautioned that should the government resort to printing money, the country would sadly have entered the next phase of “the economic destruction that we have come to witness under the PF government.”
Dr Musokotwane noted further that the risk of printing more bank notes was not a mere academic one but a real one.
“It is the real risk facing Zambia in the coming months. Finally, it begs the question: Does this government have the capacity to resolve the problem of the national economy? Clearly not; otherwise they would not have caused the problem in the first place! The problem of the debt crisis and all its negative effects has been created by the PF against all advice,” he said.
Dr Musokotwane observed that as it was currently, Zambia was desperately indebted to both external and local creditors.
He said the national debt would continue to grow from its present level because “it has not even reached its peak.”
“This is because there are other projects financed on new additional loans which were already signed in the past. The national debt statistics will continue to rise for some time as funds get drawn down for these yet to be implemented projects,” he said.
“Since 2012, observers have been warning the government against its unsustainable appetite for borrowing. Local economists, opposition parties, the international media and international organisations like the IMF and the World Bank all called for caution. The advice fell on deaf ears.”
Dr Musokotwane regretted that it was unfortunate that the government, even now, still underplayed the existence of a debt crisis in the country.
“Now and then, casual references are made to the debt situation but the words “debt crisis” have been angrily refuted or denied,” he indicated.
He further gave a summary of negative effects of the debt crisis.
“Firstly, a higher than usual number of businesses in Zambia will be closing for lack of customers. This includes both big and small businesses. This is caused by reduced availability of money in the country since large quantities of it will be externalised to go and service debt outside Zambia. In short, there is little money in the country,” Dr Musokotwane highlighted.
“Secondly, some critical government expenditure will decline for lack of funding. Completion of on-going infrastructural works will suffer the same fate. Thirdly, the national foreign exchange reserves will continue to decline. In 2013 the reserves were in excess of US$3 billion. Today, the Bank of Zambia has only about half of that amount in reserves. With the reduced levels of reserves, our kwacha is at [a] very high risk of losing value against the US dollar and other currencies anytime.”
He questioned also this year’s national budget claims that it was fully funded and that it could therefore meet all expenditures on time.
“Unfortunately, some of the revenues projected in the budget were only true on paper. In reality such revenues are unrealisable,” Dr Musokotwane said.
“In short, Zambia does not have enough money to meet the important expenditure categories of running government, development projects, debt servicing, and public salaries. In the past few years, the government handled the problem of cash shortage by suspending some development projects and scaling back on important social services as mentioned above already.”
He regretted that cash conserving measures had now been extended to delaying salaries for public service workers.
“Meanwhile, debt serving, which is the main cause of all these problems, has been spared as the government remained current on this expenditure item. By making debt service payments the number one priority, the release of funds for salary and wages will often be delayed,” noted Dr Situmbeko.
“This is why salary arrears have emerged. Once salary arrears start, it is not easy to dismantle them within months because they are huge.”
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