September 9th 2022
PRESS STATEMENT
ANALYSIS OF THE IMF PROGRAMME IN ZAMBIA
……………………………………………………………………………………………………………………………..
ActionAid Zambia (AAZ) is part of ActionAid International, a global movement of people working together to further human rights and defeat poverty for all.
The IMF Board approved $1.3 billion 38 month Extended Credit Facility (ECF) arrangement for Zambia on August 31st, 2022 and as an institution we called on the IMF and government to publish the agreement in the spirit of transparency and enable scrutiny and monitoring.
We commend the government for publishing the IMF agreement. As an institution, we wish to share some of our concerns regarding the International Monetary Fund (IMF) program. We shall particularly highlight areas where we see potential risks for the Zambian society and for the economy.
The Extended credit Facility is based on the traditional IMF austerity package. In just over 3 years (38 months) , Zambia is being pushed to move from a 6% deficit to a 3.2% surplus – and this is to be achieved by significant cuts in some crucial areas of spending and some increases in taxes that pass the burden onto the poor majority rather than onto the richest individuals and companies.
The programme projects an increase in the tax-to-GDP ratio of 3.4% (table, page 16), but most of this increase is to be achieved by removing exemptions from VAT – which will make an already regressive tax even more regressive, passing the burden in particular onto women.
There are no projected increases in corporate income tax, only an intention to ensure better tax compliance – and the same is true with revenue from royalties. Indeed, taxes on corporate profits are projected to fall from 4.5% of GDP in 2021 to 4.2% in 2025 (table, page 40). At a time of economic challenges, surely it would be fairer if the wealthiest companies made more of a contribution?
ActionAid Zambia will continue to engage with the government to make the case that increases in tax revenues should be achieved through progressive and gender responsive tax reforms, not passing the burden onto those who are least able to pay.
The government of President Hakainde Hichilema has made bold commitments to make education free from early childhood through to upper secondary and has recruited 30,000 plus new teachers to address serious shortages – as well as employing 12,000 plus new health workers.
This important expansion of the public sector work force will not be possible to sustain under this IMF programme. The public sector wage bill (framed as ‘compensation of employees’ in table on page 40) will only rise marginally from 8.1% to 8.6% by 2025, remaining below the global average of 9% (See – The Public Versus Austerity). Yet the demand for new teachers will rise dramatically as enrolments in every level of education are likely to rise significantly in the coming 3 years – so class sizes will rise, and the shortage of teachers will effectively be more acute than ever in 2025.
ActionAid Zambia will continue to make the case that investment in the frontline public sector workforce (the majority of whom are women) should be a priority as it is key to improving the quality of public services and delivering on human rights obligations.
There are serious concerns about the removal of subsidies which is being done at an accelerated rate.
Fuel and electricity subsidies may have been a factor in accelerating the debt crisis but their abrupt removal at this point could do excessive damage, leaving Zambian citizens especially the women and the youth completely exposed to the wild volatility of fuel prices on the international market following the Ukraine war. It is important over time to phase out taxpayer support to the fossil fuel industry but there is still a case for supporting renewable solutions.
Many other countries are exploring the introduction of price controls and subsidies in response to the present fuel price surges, but Zambia will be forced in the opposite direction.
Everyone in Zambia will face unpredictable bills – but the social protection programmes that are supposed to protect the most vulnerable will only reach one million people and realistically will need to be extended further. ActionAid Zambia will track the impact of the rising cost of living and make the case for more universal and comprehensive social protection programmes.
One of the success stories in recent years has been the Farmer Input Support Programme that has helped Zambia become more food secure, in particular with maize.
This programme will face significant cuts under the IMF programme and where these cuts fall will be crucial.
There is a case for ending subsidies to large scale farmers, but support for smallholder farmers, especially for climate-friendly agroecological farming needs to be protected and extended to local farming communities given Zambia’s commitment to devolution agenda. embarked on. ActionAid Zambia will work to track the impact of these cuts on the livelihoods of smallholder farmers, making the case that any cuts to the programme should fall first on industrial scale farmers not smallholders who are working with very narrow margins.
One of the commitments in the IMF programme is to a new Public Private Partnership act. There is certainly scope to improve the present PPP practices but it is important to ensure that any reforms draw learning from the well documented challenges and failures of PPPs internationally (see for example: History Reapeated – How public-private partnerships are failing – Eurodad and PPPs and Women’s Human Rights – DAWN).
One well documented failure is that when PPPs mean that user fees are charged for access to public services, this becomes extremely burdensome on women – who are already restricted by disproportionate poverty and care giving; women have to either fill the service gap themselves or spend already restrained income they have on accessing services for themselves or their households ActionAid will engage with this process to ensure that PPPs do not end up being more expensive for the public purse, do not pass on costs and labour to women, do not place the risk disproportionately on the public sector, are negotiated transparently in balanced negotiation processes with strong and enforceable regulation of all private contractors.
Zambia has been in a serious debt crisis, and we recognise that there are no easy solutions. However, it is not clear whether Zambia’s creditors will actually cancel the $8.4 bn of external debt payments due between 2022 and 2025 or whether these will just be deferred until a late date. More clarity is needed in order to ensure that we will not be faced with a similar debt crisis in future. There needs to be a greater and more explicit commitment to debt cancellation rather than simply postponing the problem.
In summary, this IMF programme fails to pass the burden onto those who are most able to pay. It does not have an equity lens, least of all a gender equity lens. This is the result of a secretive process with key background analytical documents remaining unpublished, making it hard for Zambian citizens and civil society to engage in key stages. It is too late to change the core of the agreement now, but we hope that we can work with others in civil society to make the case for progressive and equitable solutions to be found within the coming three years.
We will track the impact of this programme and expose the injustices that arise, arguing for alternative paths to be followed that shift the burdens on to those actors who are most able to pay.
The next time such an agreement is negotiated we must demand full transparency from the government in every moment of the process – and we must push back against the cult of austerity that the IMF continues to champion.
Signed
Nalucha Nganga Ziba
ActionAid Zambia Country Director