Sunday, July 26, 2015

Zambia’s future bleak due to incessant govt borrowing

COMMENT - There would be no debt at all if the government simply collected stiff Windfall Taxes from the mines. The debt is doubling, the currency is under pressure instead of increasing because of all the value flowing into the Zambian economy out of the mining sector. Who is the lunatic now, Finance Minister Chikwanda?

Zambia’s future bleak due to incessant govt borrowing - Haabazoka By Misheck Wangwe and Stuart Lisulo | Updated: 26 Jul,2015 ,11:22:25

THE future of Zambia is bleak looking at the incessant borrowing being made by the PF government, says Copperbelt-based economist Dr Lubinda Haabazoka.

The Zambian government on Thursday issued a US$1.25 billion Eurobond, the highest ever, to be repaid in 10 years.

The facility, which was over-subscribed by US$500 million, is the third that Zambia has issued under the PF regime, at 9.37 per cent interest annually.

But Dr Haabazoka, who is also a senior lecturer of business studies at the Copperbelt University, said looking at the expenditure by allocation, much of the borrowed money might even go to consumption.

“No country in the history of economic development has ever developed on borrowed funds. One might argue that governments issue treasury bonds to develop their economies but the type of borrowing that we have seen is unprecedented. In 2011, Zambia only owed US$1.2 billion in foreign debt and now it owes more than US$7 billion. The rate at which we are acquiring debt is very high,” he said.

Dr Haabazoka said what was more worrying was that the sources of income were narrowing and the country’s economy was being run on borrowed funds.

He said the government could have cut down unnecessary expenditure such as scaling down the size of government and doing away with projects of low priority.

Dr Haabazoka said thinking that borrowed money was the only source of the national budget or running government was a misplaced ideology.

“This year is going to be the worst economically, after 15 years, because of the huge budget deficit due to lack of proper planning on the way government is supposed to be run. Look at the energy crisis! It will cost businesses because Zesco and government have recorded huge losses in terms of missed revenues and opportunities. Look at the fuel sector! There are huge losses; Indeni has shut and businesses that depend on generators to backup their energy sources have huge challenges to operate. Economically, our performance is dismal as a nation,” Dr Haazoka said.

He said the state of the economy was making it extremely difficult to operate smaller businesses.

“My advice to finance minister Alexander Chikwanda is that he must make this loan his final for the next two years. Those working in government must help in coming up with a strategy on how revenue collection could be improved without burdening the already overburdened labour force and formal sector,” Dr Haabazoka said.

He said the proceeds from the Eurobond were not likely to benefit Zambia’s economy owing to the massive externalisation of financial resources in the construction sector among foreign contractors.

“I see a lot of externalisation of resources because most contractors that are going to work on these infrastructure developments are Chinese and other foreign nationals so we are basically borrowing for foreign economic participants,” Dr Haabazoka added.

He also said the government’s intention to address the widening budget deficit, which is projected to soar to around K20 billion from K8.5 billion by accumulating new debt, will actually widen it even further next year.

“In trying to solve a budget deficit by borrowing, we are actually creating a wider deficit for the next year so basically, we are not solving anything! The easiest way to solve a budget deficit is to reduce unnecessary expenditure. You have to prioritise which sectors need money most and which ones can wait for the future,” said Dr Haabazoka.
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