HOW PRESIDENT HAKAINDE HICHILEMA WAS DUPED BY THE IMF
By Sean Tembo – PeP President
1. On 2nd September 2021, barely 8 days after being sworn in as Zambia’s 7th President, Mr. Hakainde Hichilema announced that he was going to obtain a bailout loan from the International Monetary Fund (IMF), and put the country on an IMF program. At this point, President Hakainde Hichilema had not even constituted his cabinet. This important economic matter was essentially a one-man decision that was devoid of any cabinet scrutiny or debate.
2. In the days that followed, we challenged the President to explain to the nation the necessity and expected benefits of an IMF bailout program, especially given the fact that our economic prospects appeared stable at the time. Our biggest export earner; copper was trading at about $10,000 per metric tonne, our gross foreign reserves were the highest in since independence at about $3 billion, the exchange rate was around K15 per dollar, the price of breakfast mealie meal was around K120 etcetera.
3. President Hakainde Hichilema did not respond to our challenge of why we needed to put the country on an IMF program, but a day later he appointed his first Minister; the Minister of Finance. Hon. Situmbeko Musokotwane’s first order of business was to explain and justify the IMF bailout program. His main argument was that the program was necessary as it would allow the country to obtain debt relief. When we pressed him about the specifics of Government’s targeted debt relief and how the IMF would deliver it to us, he never gave a solid explanation but only ducked and dived.
4. You see, when you talk about debt relief you are essentially asking your creditors to give you more flexible terms of payment. This is either by increasing the payment period so that your repayment instalments can be smaller or giving you a repayment holiday of say a year or two so that you can have space to reorganize your finances or something to that effect. Ideally, debt relief makes sense if you have not yet defaulted, so that you do not default. However, at the time that President Hakainde Hichilema and his one-man cabinet were taking the route of an IMF program to achieve debt relief, the country had already defaulted to it’s creditors.
5. Additionally, our considered view at the time, which is still our position today is that the IMF was a wrong vehicle to use to achieve debt relief or indeed debt cancellation. We say so because of the structure of our $12 billion or so foreign debt at the time. Most of it was commercial debt owed to institutions as opposed to sovereign debt owed to Governments. In fact, out of the $12 billion, the largest sovereign debt of about $6.6 billion was owed to China. It is extremely difficult to re-negotiate commercial debt, but sovereign debt can be negotiated because you can appeal to the moral guilt of the creditor nation. But in the case of China, the approach really matters and a pro-western vehicle like the IMF cannot work when it comes to negotiating with China.
6. We advised President Hakainde Hichilema at the time that we are likely to succeed with debt relief and possibly even debt cancellation if we engaged the individual creditors directly instead of us using the IMF vehicle. When we were contracting this debt, we engaged our creditors directly and it is only respectful that now that we have problems paying back, we must engage them directly again to explain to them and to ask them how they can assist us. Most of our bilateral creditors feel disrespected if not outrightly insulted that instead of engaging them directly regarding debt relief, we are asking the IMF to do it for us. But of course, President Hakainde Hichilema and his one-man cabinet at the time, dismissed our advice with contempt.
7. Fast-forward to 15 months later and here we are in 2023. According to the Minister of Finance, Government has implemented all the IMF conditionalities, most of which have had a harsh effect on the Zambian people. They cut the amount of fertilizer allocated under the Farmer Input Support Programme (FISP) to the extent that 12 farmers were sharing one bag of fertilizer in medas. They cut the medicine grant to health facilities to the extent that more than 90 percent of the medicines and consumables needed by patients have to be bought over the counter by patients themselves in private pharmacies. They have increased electricity tariffs for connection and meter separation by more than 1,000 percent. They have increased fuel pump prices by more than 70 percent in the past 6 months, with reviews on every last day of the month. They have exported electricity while loadsheding the nation, with dire consequences on our economy.
8. However, despite Government having implemented all these harsh IMF conditionalities, most of which l consider senseless, the IMF is unable to deliver it’s side of the deal. They are unable to deliver the promised debt relief. In the past few weeks prior to the visit by the IMF Managing Director and US Treasury Secretary, the Minister of Finance was crying everyday in the media. The tune of his cries was the same; “we have implemented the IMF conditionalities as instructed, can the IMF now deliver the debt relief please”. These cries kept getting louder and louder everyday, and l suppose the IMF decided to come quickly to calm some nerves, hence the high-powered delegation of not only the IMF MD but also the US Treasury Secretary. They even decided to open an IMF Office here in Lusaka, which, truth be told is just a one-room with a receptionist.
9. Anyway, during a town-hall meeting at the University of Zambia, the IMF Managing Director said it was up to the individual creditors to deliver debt relief to Zambia, but added that the fact that we have defaulted on our debt repayments will make debt relief difficult to achieve. She also asked China to get on board and give us debt relief. Actually, this town-hall meeting was more revealing than the usual closed door meetings that the IMF normally holds with the Ministry of Finance. Some of the take-homes from the IMF MD’s statement is that the IMF is divorcing itself from the responsibility of delivering debt relief to Zambia by saying that it is up to individual creditors to deliver debt relief to Zambia. Secondly, the IMF is now trying to give excuses of why it has failed to deliver debt relief, by saying that the country’s default makes debt relief difficult to achieve. How can that be when President Hakainde Hichilema signed the IMF Program Agreement at a time when the country was already in default, so our default is not a new development which the IMF can use as an excuse for not delivering the promised debt relief. Thirdly, instead of the IMF engaging China in a nice diplomatic manner, they are shouting at China. This resulted in the Chinese Embassy in Lusaka issuing a statement which basically summarized who the IMF really are in not so many words; “meddlers without solutions”.
10. What next? You might ask. Well, as things stand, it is evident that President Hakainde Hichilema was hoodwinked into believing that the IMF can deliver debt relief to us, when in fact not. All that the IMF ever wanted was to stick us with another loan so that they can control us like oxen on a plough. In fact l questioned the Minister of Finance at one point, how additional borrowing from the IMF can be part of the solution to our over-indebtedness? He never gave me a straight answer. It is like pouring petrol on a house that is on fire, as a way of extinguishing it. It just doesn’t make sense. But let us not lose sight of the question what next? Well, if l was President Hakainde Hichilema l would simply lick my wounds and accept the fact that the IMF pulled a fast one on us. I would then immediately get on the plane to Beijing, China and apologize to President Xi Jinping for not having visited him earlier and then proceed to ask him how he can help us with debt relief and possibly debt cancellation. It is worth noting that just a few weeks ago, China wrote off more than $1 billion debt to Ethiopian. Once our single largest creditor gives us debt relief, then our other creditors will most likely follow suit. As for the IMF, well, they are like that uncle in the family who talks alot but never delivers. You just have to watch them talk, nod your head absentmindedly, sip your tea and forget about them.
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SET 29.01.2023 l Email: SET2026@pepzm.org