Maravi

Guard against another debt trap

COMMENT - This government is a criminal enterprise, as previous MMD governments were before it. Zambia is running up debts it's citizens will have to repay, so the foreign mining companies don't need to pay taxes, and the politicians can take their bribes. In fact this 'democratic government' is being remote controlled from London, New York, Toronto and Sydney. That is where the real decisions are made. Anyone with integrity in this government should resign immediately, until the mines are taxed 20% of their revenues. This government with do anything, and go to any length, to avoid having their friends pay taxes, and the people of Zambia be damned. This is neocolonialism.

Guard against another debt trap
By The Post
Sun 07 Mar. 2010, 04:00 CAT

THERE is need for serious reflection on the manner in which our country has continued to contract debt. We say this because our nation risks falling into the debt trap, a suffocating trap that future generations will have to struggle to liquidate. In 2006, our country attained the Highly Indebted Poor Countries (HIPC) completion point.

The HIPC and Multilateral Debt Relief Initiative contributed significantly to the reduction of our country’s debt, which stood at about US $7.1 billion at the time. However, according to this year’s budget, “the government’s stock of foreign debt is expected to grow by US $59.7 million to about US $1,159.6 million by end of 2009.

This is well within sustainable limits, and in line with the government’s debt policy.” We know that our domestic debt stands at about US $400 million. Simply put, our external and domestic debt as a country is now about US $1.6 billion.

The government of Belgium last Thursday cancelled the 5,100,000 Euros about K34 billion loan lent to Zambia towards the rehabilitation of Lusaka International Airport.

This is a very welcome development, especially that our country requires resources to address the numerous challenges our people are facing. But there is need for a serious national debt management strategy that will protect the country from unnecessary debt contraction and misapplication of funds that ultimately erode the gains of debt cancellation.

We are where we are as a nation, as a country, not because we have not had access to finance, to debt, to money to borrow. We have had a lot of access to debt and that is why today we are still having countries cancelling our debt.

The questions we should be asking as we borrow are: why are we borrowing; what are we going to use that money for; do we have capacity to manage effectively and in an orderly manner what we have borrowed and lastly we should ask ourselves how we are going to pay back.

These seem to be simple questions but they are of great importance to the management of our economy and the future of our country.

These are questions not only those who manage the affairs of the country should ask themselves but all of us – as individuals and corporate entities - whenever we think of or contemplate borrowing money for anything. Problems can arise if these questions are not raised and answered properly.

Not so long ago, the government’s plan to get a loan of US $53 million about K246.1 billion from Exim Bank to procure mobile hospitals from China was exposed and Rupiah Banda supported it and described it as a damn good idea.

This plan has been condemned by our people especially that the money which will be used for procurement will be a loan that will have to be repaid later.

However, this plan of mobile hospitals apparently still stands because Rupiah has announced that the Zambian government has submitted a list of projects, which includes mobile hospitals with the hope of seeking financial assistance from China’s aid package for Africa.

Just recently we were told that Rupiah told the World Bank president Robert Zoellick that Zambia is trying to seek higher interest loan facilities from the Brenton Woods institute to finance the repair of roads damaged by mining activities in the country.

Zoellick told journalists from African countries via video conferencing from Addis Ababa, Ethiopia that Rupiah was considering borrowing from the International Bank for Reconstruction and Development (IBRD) window to finance crucial infrastructural projects.

But we know that borrowing from the IBRD, a non-concessional window attracts interest rates of between three to three and half per cent while disbursement of financing for projects by World Bank through the International Development Association (IDA) window is done through grants and soft loans. Zambia currently accesses financing for infrastructural projects from the World Bank through the IDA window.

This decision – among others - by Rupiah to borrow through the IBRD, if it is implemented, in our view is what risks taking the country back into the debt trap, undesirable at it might be.

For instance, if the government borrows money to work on the roads leading to the mines, the revenue they get from the mines with the change in the 2008 mining fiscal regime will not even be sufficient to help pay back that loan.

The country will continue paying back that debt long after some of those mines have closed shop and the roads are damaged again.

We are not in any way saying that the roads leading to the mines should not be worked on. They should, but at a cost that will not land the country into a huge debt. The government has to find a better way of financing such a project and raising revenue from the mining sector itself could be a start.

At the rate we are going, no matter how much we borrow, we will not be able to address the problems and challenges facing our people because a large chunk of money we borrow is stolen, wasted, misapplied or misused in one way or another. A government project that should cost US $1 million in a well managed economy ends up costing US $5, 10, 20 or so million.

What type of return can one get on an investment where more is spent far beyond the proper or reasonable cost of the undertaking? If that type of cash is spent on a road, the road will be worn out before the loan is repaid and this creates a problem because we will be required to work on it again before finishing the previous loan repayment and this is what is happening in most of our projects. What this means, if it is allowed to continue, is that we will not get out of the debt unless we stop.

It is unfortunate that the National Constitutional Conference (NCC) not so long ago referred to a referendum the clause in the Mung’omba draft constitution which seeks to compel the government to disclose to the National Assembly the terms and conditions of the loans they want to contract.

This system could have helped to provide authority to Parliament to discuss loans, terms and conditionalities attached to all debts the government can contract. It would have enabled parliamentarians, who are the representatives of the people, to determine the country’s limits for both external and domestic loans.

Our country seriously needs a flexible tool that can help in the monitoring of debt resources from the point of allocation, disbursement, utlisation and the evaluation of the implementation process.

It is sad that our country has not made good progress as far as reforming policies and laws that led us into the previous debt trap. Yes, our country’s debt problems were caused by numerous factors such as the balance of payment problems but we need to work on the weak institutional frameworks.

And these are the policies that need serious attention to protect the country and the future generations. We will continue to get write-offs as a country but they will not be a solution if we do not make serious attempts to manage the way we borrow and how we use the money we borrow.

Involving Parliament in loan contraction will not in any way reduce the powers of the Executive. We strongly believe that there is no way the Legislature can prevent the government from borrowing money if the intentions are good or if the money is aimed at investing in projects that will uplift the standards of our people who continue to wallow in poverty.

The Legislature can only prevent the Executive from borrowing money if it is for projects like mobile hospitals and other unnecessary things. And that is why we need this important clause in our Constitution to prevent abuse and enhance accountability.

There are countries in Africa such as Uganda, which have provisions for parliamentary ratification of loans in the interest of transparency and accountability and to ensure that they borrow for the right reasons.

There are also countries like Namibia, which have placed a ceiling on debt contraction and cannot go beyond a certain percentage of their country's Gross Domestic Product in their borrowing. All these measures are there to ensure good governance and development for the benefit of the people.

The fact that developing countries such as ours lack proper bargaining power on the loans leaves us at the mercy of international financial institutions and bilateral donors. And this is where the reality of the flaws in the distribution of power internationally comes to the fore.

This is the reason why Parliament should be able to look at the conditions of all loans before the government actually commits the country. Contractual processes should be as transparent as possible and Parliament should be involved to ensure that whatever money our country is borrowing is in line with the development priorities.

Challenges of misapplication of funds are still there as evidenced by the Auditor General’s annual reports and our poor people will continue to suffer as long as these reports are treated as an academic exercise.

Poverty, disease and underdevelopment will continue to be with us as long as fighting corruption and prudent usage of resources continues to be confined to political rhetoric.

Our bilateral and multilateral partners will continue to cancel our debts but our people will still lack the basic of needs if there is no proper leadership; if priorities are not set right; if the thieving goes unabated; if the wastage of resources on expensive tourism expeditions all over the globe are perpetuated.

We need to guard against the resurgence of the debt trap because it will create a nightmare for the future generations.

Labels: DEBT, HIPC, WINDFALL TAX

posted by MrK @ 7:39 PM