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There’s reckless financial management - Magande

There’s reckless financial management - Magande
By Chiwoyu Sinyangwe
Tue 19 July 2011, 13:59 CAT

THE current regime’s financial management is too reckless to protect Zambia from falling into another debt trap now that we can borrow commercial loans, says Ng’andu Magande. Magande, a former finance minister, said the credentials for Zambia’s reclassification of as a lower middle-income country did not belong to ordinary natives.

Last week, the World Bank reclassified Zambia as a lower 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 reclassified as lower middle-income countries since the year 2000 while economically-diversified Ghana, whose GDP per capita, according to CIA, is about US $1, 600 trailed at 28th on the same list.

In an interview, Magande who is also National Movement for Progress (NMP) president, said the graduation of Zambia from a Least Developed Country (LDC) to lower middle-income country came with some challenges in accessing cheap finances for investment to help uplift 68 per cent of Zambians still trapped in extreme poverty.

Magande said borrowing of money from commercial rates called for an evolution in the manner the country contracts new loans to avoid sliding into another debt trap like the US $7 billion seen before 2005 which was only liquidated via painful austerity measures which included a one year wage freeze on civil servants’ perks.

He said unless the country was able to direct resources to the people, Zambia could be a middle-income country but the majority of the population continued to wallow in abject poverty.

“What we need is targeting of this development. ‘Where is it going and how?’ Just like the growth, we have been saying it’s growth in a few industries like mining and so on which is not directly going to the people,” Magande said.

“Even the middle income, the income we are talking about is the sum total of our production and unless that production somehow finds its way to the people, it is there, then you divide the population which is a very easy way.”

Magande said the raising of Zambia’s credit worthiness was in itself a risk as long as there is no proper scrutiny and oversight in the contraction of new loans.

“It means the government will just be bringing these projects…there are people willing to lend money out there because lending money is big business. Even like President Rupiah Banda said the other day that there are people who are waiting to lend me money, so, ‘I can get it anyhow’, it’s because at the end of the day, you have to repay the money and they want a profit on its interest,” Magande said.

“So you have to be careful what you are borrowing for. If People are saying we are borrowing money to put up another Nakambala Sugar Estates somewhere in Munkumbwe area or we are trying to do some textile mill in Mumbwa, then you will have the money by selling these things to pay back the loan.”

Fiscal loan contraction via oversight of Parliament was one of the proposals in the National Constitution Conference fiasco, but was incessantly opposed by top government officials and their supporters.

“But obviously for me, when we see this government just spending money on projects which are not even in the budget, they are not thinking of how to translate that increased income to the people,” said Magande.

“This kind of laissez-faire and ‘I don’t care attitude’ then, we will end up now people saying ‘now, after all everybody knows we are middle income and within the next two years, we will be back to US $10 billion of debt’. How do you repay that debt when the money from vast copper mining is going out of the country? It is not in your bank and therefore, you can’t borrow it, at the end of the day, this is an extractive industry and so it means you are not even regenerating, so, you are not even applying technology to it, so, there are a lot of things obviously that would disadvantage us.”

Last week, finance minister Dr Situmbeko Musokotwane said the lower middle-income status puts Zambia at a risk of falling into another unsustainable debt positions if there is no prudent borrowing.

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 as a middle-income country before the erosion of the country’s key economic base - copper mining - degenerated the country into the LDC category as a result of maladministration and low international copper prices.

Labels: DEBT, NG'ANDU MAGANDE, SITUMBEKO MUSOKOTWANE, World Bank

posted by MrK @ 3:33 PM