Alexander Nkosi
DISCUSSING REVENUE LEAKAGES AND IMF DEAL WITH AMBASSADOR EMMANUEL MWAMBA
By Alexander Nkosi
Let me take this opportunity to applaud Ambassador Emmanuel Mwamba for his interest in discussing the IMF deal exhaustively. While we are on different sides of this debate, it is good to see leaders engage in issue based politics. Critical analysis and extensive debate is key to the success of our economic reforms.
Ambassador Mwamba is suggesting that Zambia loses about $1 billion in tax avoidance and evasion by multinational corporations, mainly in the mining sector, therefore Zambia should not pursue an IMF deal but simply put in place measures to deal with tax evasion and avoidance. I will address his suggestion in four points:
1. In our quest to move the nation forward, it is important to learn from the past and to achieve this we need to engage some key leaders from the previous government to help us understand some of the decisions they made, one such key leader is Ambassador Emmanuel Mwamba. I have a few questions: (i) if all we needed to do was to seal revenue leakages and ensure we don’t lose the $1 billion, why did we end up with $12.9 billion external debt, K189.7 billion domestic debt, and K46.9 billion domestic arrears? (ii) How much of the $1 billion annual leakage was recovered by the previous government? How did they do it and what can we learn from the success and challenges in dealing with tax avoidance and evasion?
2. The IMF deal is not all about the $1.4 billion concessional loan, there are four benefits of being on an the program: 1) Success of our debt restructuring hinges on us being on an IMF program. As of 2021, debt service and wage bill took up 118% of our domestic revenue, in the absence of debt restructuring it will be hard to move forward. 2) In his time in South Africa, Ambassador Mwamba did a commendable job in bringing investors in the agriculture sector, this means he appreciates the importance of foreign investment to our economy. According to a survey conducted by Bank of Zambia, ZDA and other key stakeholders, as of 2019 even before the pandemic, foreign direct investment declined by 50%. One of the key reason cited was the state of the economy. Being on an IMF program will help boost investor confidence. (iii) Over the past 10 years, the structure of our debt has significantly changed from being predominantly concessional to commercial, being on an IMF program will help increased access to concessional borrowing. (iv) The fourth reason is that the IMF program comes with a $1.4 billion loan which will help easy our deficit and balance of payment challenges.
3. Being on an IMF program does not stop us from strengthening domestic revenue mobilisation and sealing revenue leakages (tax avoidance and evasion). Infact it is one of the key measures in Zambia’s economy recovery plan. Hence, we will actually pursue both.
4. Before worrying about IMF conditionality, we have to ask ourselves whether we are managing. ZESCO has a total debt of $3.5 billion and owes IPPs $1.1 billion. In the petroleum transactions, we owe over $700 million. Overall we have $12.9 billion foreign debt, K189.7 billion domestic debt and K46.9 billion domestic arrears, do we need IMF to tell us this is unsustainable?
Thank you.