Debt Service begins to Impact Government Expenditure
By Amb. Emmanuel Mwamba
Zambia has not been servicing its major debts since December 2020 as part of the G-20 Debt Service Suspension Initiative (DSSI), an Initiative that recognized the fiscal challenges countries were facing after the Pandemic.
Zambia was the first country to suspend its debt service obligations. They are now 38 low-income countries that have since benefitted from the DSSI.
The initiative was for one year to three years.
Further, the IMF provided emergency financing, grants for debt relief, and in April 2021, offered $650 billion to all its members in April 2021, to help meet the long-term global need to supplement the country’s foreign reserves.
Zambia received $1.3 billion in special drawing rights for this purpose.
The Opposition led by President Hakainde Hichilema mocked the Government at the default. An excited narrative they still peddle while reaping its benefits!
Clearly, Hichilema’s government became the biggest beneficiary of the debt service suspension Initiative as it was not paying its obligations since December 2020.
During this period, the Government had a galore of “free money” and could afford to channel such funds to the social sectors and do mass recruitment of teachers and health workers.
As part of the new Debt Restructuring Deal of both China, Paris Club and the Eurobond bondholders, Government has started servicing its debt with an initial bullet payment of $187 million to Eurobond holders besides other service obligations.
The effect on the fiscuss is immediate with open strain. Now salaries are being delayed, retirement of civil servants’ instalment deductions to microfinance institutions are delayed,and arrears are beginning to pile!
The Minister of Finance, Hon. Situmbeko Musokotwane has announced that Government needs about $900million from cooperating partners for the emergency disaster and will cut up to 30% of the budget of Ministries, Provinces, and other spending agencies to channel resources to food security and other measures.
He has also submitted, besides the K178 billion 2024 national budget, a supplementary budget of K41 billion that will largely go to debt service.
It appears, the disaster will be used, to a very large extent as the reason to inflate and expand the budget and its expenditure, and extend the begging bowl to unsuspecting international community.
Remember a drought should never result in a famine. The story of Joseph as described in Genesis 41 is apt in this case.
Joseph organised the storage of all surplus grain during the seven years of good harvests to prepare for the subsequent upcoming seven-year drought.
As at August 2021, the Patriotic Front left 1.5 million metric tonnes in national strategic maize reserves with the Food Reserve Agency (FRA) with another harvest of 3.7 million metric tonnes anticipated in 2021-2022 season.
President Hichilema has always justified the careless decision to export the maize claiming they needed to pay the FISP farmers and create room for the upcoming harvest.
Clearly the debt service will choke and disrupt Government developmental plans.