Saturday, February 22, 2014

Rate of govt borrowing is alarming - Haabazoka
By Misheck Wangwe in Kitwe and Stuart Lisulo in Lusaka
Mon 02 Dec. 2013, 14:00 CAT

THE rate at which the PF government is borrowing and the manner it is managing external debt is very worrying and alarming, says Dr Lubinda Haabazoka.

And Dr Haabazoka says the introduction of windfall tax is inevitable in Zambia because appropriate mine taxes should be the major source of national financial sustainability. Meanwhile, Professor Oliver Saasa has advised the government to invest more in understanding its capacity to servicing debt.

Commenting on the decision by Parliament to pass a motion to give the finance minister powers to raise Zambia's debt ceiling from K20 billion to K35 billion, Dr Haabazoka, a Copperbelt-based economist who is also a lecturer of business studies at the Copperbelt University, said the government must begin to demonstrate fiscal discipline to avoid external borrowing.

He said the government's rush to get loans and debts being acquired through capital markets was an economic hazard.

"We can borrow as a country but we should not exceed certain limits, otherwise we will be pushing the debt burden to the future generation. Borrowing, even just for consumption when you have an expanded government, a civil service that is also bloated, then monies will just be servicing the existence of the government," Dr Haabazoka said.

"Let us first look at fiscal discipline, let us look at ways of maximising tax collection and then find ways of spending these scarce resources and cut costs in terms of government expenditure. The rate at which we are accumulating debt has doubled, it's very alarming and it is rumoured that in the next five years, the government will borrow US$5 billion dollars and that's very unsustainable."

Dr Haabazoka said developed countries like Japan were also overburdened by debt but the advantage was that their debt was domestically sourced.
He said the biggest problem was that the Zambian government was getting debt externally.

"If we are not careful as a country, we will find ourselves in a situation where the budget allocation to vital sectors will be competing with interests that come with debt repayment. We have to be careful," Dr Haabazoka said.

And Dr Haabazoka said the mines could not in any way suffer because of windfall tax, adding that by definition, the government would only tax excess profits.

He said mineral resources belonged to Zambians and windfall tax must be introduced so that mining investors would not always pocket everything once they get excessive profits.

"Windfall tax is a prerequisite for financial self-sustainability. When you look at the period of the late president Levy Mwanawasa when we had windfall tax, the country was doing well because we had resources and we embarked on large infrastructure development projects. Today, the mines are not paying enough taxes. Look at their contribution to GDP (Gross Domestic Product), it's very low and it does not represent a true picture of how much the mines were getting," said Dr Haabazoka.

He said there was need to enhance transparency in the way mining firms were declaring expenses and profits so that the government could collect appropriate taxes.

And Prof Saasa, who is chancellor of Mulungushi University and a managing consultant, said debt sustainability analysis was not necessarily 'objective'.

"Our debt sustainability analysis does not bring sufficient comfort to feel comfortable that we can continue borrowing. A debt sustainability analysis is required and we are not actually doing this with sufficient comfort, and government was the first to acknowledge that," Prof Saasa said.

He said there was need for the government to circulate the debt sustainability analysis in the public domain to allow for wider consultation.

"When these analyses are prepared, they should be put into the public domain so that people have an opportunity to look at them and guide government and become part and parcel of information sharing. They are subjective documents done by human beings and I am glad government conducted the analysis, but to share that information is equally important because that would have informed government that we can actually still extend it to K35 billion" he said.

"I am not so sure whether our parliamentarians were well versed in terms of the implications; probably, it was more of a vote according to whether one was PF or the opposition. The debt sustainability analysis should have been one of the documents that all parliamentarians should have been exposed to and simplified in a way so that by the time they go and vote in Parliament, they should feel comfortable that this document has indicated that for the next 5 or 10 years, the executive is allowed to go beyond the threshold, then the voting will be based on the facts rather than party affiliation."

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