Maravi

Huge domestic debt worries stakeholders

Huge domestic debt worries stakeholders
By Fridah Zinyama
Tuesday June 10, 2008 [04:00]

STAKEHOLDERS have expressed concern at the high domestic debt that the government owes most suppliers and contractors as it is affecting their businesses and their positive contribution to the country’s economy. The country’s debt stock had risen from K1.7 trillion in 2002 to K8.8 trillion in 2006, raising concerns among stakeholders for the government to come up with a quick action to dismantle its domestic debt.

But the minister of finance, N’gandu Magande, in this year’s budget speech said the government has serious intentions of dismantling most of its domestic debt.

Magande said it was government's intention to dismantle most of its domestic debt by allocating about K53 billion for 2008, K20 billion for 2009 and another K20 billion for 2010 to pay retrenched and retired public servants due to restructuring.

"Part of the debt government is trying to dismantle comes from arrears it owes to suppliers of goods and services of about K351 billion for2008 and K101 billion for 2009,” he said. "And government has allocated about K269 billion for arrears for retirements projected to be paid off in full by 2009."

Collins Sifafula, an economic consultant, one of the participants at a workshop organised by Jesuit Centre for Theological Reflection at their premises last week, said high domestic debt erodes investor confidence in the country.

He said as a country that is looking for foreign direct investment, it is important for the government to quickly dismantle this debt.

“Players in the economy like small and medium enterprises (SMEs) have been complaining about the lack of access to finances but the problem is normally compounded by government’s delay in paying suppliers and contractors, making it difficult for them to repay their loans,” he observed.

Sifafula said most SMEs had been closed due to their failure to pay back their loans.

And Bob Liebanthal said it was important for the government to set ceilings for both domestic and external borrowing as it would discourage over borrowing.

He said it was not only important to set ceilings but also impose sanctions against officers who exceed limits that have been set on domestic borrowing.

Meanwhile, Jubilee Zambia coordinator Sitali Muyatwa said although there was a legal and administration framework for the management of national debt, as reflected in the Loans and Guaranteed Act CAP 366 of the Laws of Zambia, there are some weaknesses in debt management in the country.

“One of them is the lack of high level coordination and a monitoring body that oversees overall debt management at the highest level,” he said. There is also equally a lack of debt policy to guide public officers on when to borrow, where to borrow from and how to borrow.”

But Bank of Zambia governor Caleb Fundanga said the government is currently developing a debt strategy to counter the country’s borrowing patterns.

Dr Fundanga said Zambia needed strategies to ensure that responsible and sustainable borrowing patterns are adopted by the government.

He said the move was not meant to prevent the government from borrowing but to ensure that resources were borrowed for specific economic programmes.

"The debt strategy which is currently in draft form will provide a clear framework for governing debt contraction and management," Dr Fundanga said.

He said the government's total external debt, which now stood at US $1.1 billion, was still a challenge for the country.

"Borrowing should be for productive activities so that we can have the ability to pay back," Dr Fundanga said. "Domestic debt is also a matter which needs to be addressed as it carries some interest. So, government has to mobilise this money to pay back. Borrowing sometimes is not good for the future of the country and that is why we needed guidelines for borrowing by the government."

Labels: DOMESTIC DEBT

posted by MrK @ 4:39 AM