Saturday, July 16, 2011
Musokotwane urges debt sustainability analysis
By Chiwoyu Sinyangwe
Sat 16 July 2011, 14:00 CAT
THE lower middle income status puts Zambia at a risk of falling into another unsustainable debt position if there is no prudent borrowing, says finance minister Dr Situmbeko Musokotwane.
The World Bank has reclassified Zambia as a middle-income country on account of increasing copper output coupled with favourable international metal prices and increasing donor aid to the country.
Zambia, with an average gross domestic product of US $1,200 per person was ranked 27th among the 63 countries which the World Bank has reclassified as middle-income countries since the year 2000 while economically-diversified Ghana, whose GDP per capita, according to CIA, is about capita US $1600 trailed Zambia at 28th on the same list.
Dr Musokotwane said the graduation of Zambia from category of Least Developed Countries (LDCs) would aid the country to borrow more for expenditure to make a dent on the huge infrastructure bottlenecks in the country.
He said there was need for proper assessment and prudence in contracting new loans to avoid the risk of falling into another debt trap like the about US $7 billion foreign debt which shackled Zambia until it was liquidated in 2005 via painful fiscal austerity measures.
With Zambia’s graduation to lower medium term status, the country’s ability to borrow from the soft-loan window of key multilateral lending institutions would be limited.
“That is risk is there. The most important thing for the government is to make sure that even when we can now borrow on commercial (basis), we do it prudently,” Dr Musokotwane told journalists yesterday.
“Before any new loan is obtained, we do a debt sustainability analysis – ‘can we sustain this debt with this extra new loan we are acquiring?’ If the answer is yes, you borrow. If no, you don’t. Sometimes people are alarmed to say we are borrowing so much, the ability of the poor man to borrow and that of a rich man are completely different. As our economy expands, the capacity of the economy to borrow has also improved. In certain cases, you need to make this borrowing for the growth to continue.”
Dr Musokotwane said Zambia would still access cheap sources of finances from the concessional windows, although the facilities would be reduced.
“With what we are now, we are a hybrid – which means we still get concessional financing but you can also now begin to access non-concessional financing which is much more available,” he said.
“However, concessional financing is limited because people don’t want to give handouts. The only money available from the World Bank to us, it is no less that US $70 million per annum which is very small amount.”
The current regime has in the last few months exhibited increased expenditure on fiscal projects and programmes outside the budget estimates.
Unplanned expenditure such as the US $53 million expenditure on procurement of mobile hospitals from China and the current populist expenditure on urban roads especially in opposition strongholds, according to analysts, would compromise the government debt sustainability programme.
Dr Musokotwane also admitted that poverty levels in the country still remained high despite Zambia’s positive macroeconomic credentials. He said World Bank rating would help the country to attract more foreign investments to aid economic growth to make a dent on poverty reduction efforts.
“With the up-scaling like this, people will have been pulled out of poverty. Yes, there are others who have remained behind but there are many others who have pulled out of poverty,” Dr Musokotwane said.
“The economy must grow. Let’s continue to open ourselves that more investors are coming. If we continue on this growth process, certainly in the next 5 to 10 years, this country should show a remarkable progress in the fight against poverty. With this upgrading of our income status, we are going to see more investors coming to our country and therefore the growth is going to be sustained. As you become healthier, donor assistance to Zambia is going to come down. This is good for us because any self-respecting person does not want to become a beggar forever.”
According to World Bank ratings, countries with GDP per capita of less than US $1,005 are LDCs while those of between US $1,006 to US $3,975 are in lower middle income group.
Upper middle income groups are those countries with GDP per capita of between US $3,976 per person to US $12,275 per person while countries with above US $12,276 are classified as high income country.
At independence in 1964, Zambia was classified a middle income country before the erosion of the country’s key economic base – copper mining through maladministration and low international copper prices degenerated the country into the LDC category.