IMF DEAL- Responding to Alexander Nkosi
By Amb. Emmanuel Mwamba
I am glad to discuss a challenge thrown at me by my dear brother, Alexander Nkosi who wrote a piece; “Discussing Revenue Leakages and the IMF Deal”.
I have consistently argued that Zambia does not need an IMF deal whether this initiative was pursued by the Patriotic Front or has been achieved by the UPND Government.
This is because both our economists and policy makers appear to learn nothing from the country’s disastrous past association with the IMF and its imposed structural adjustment policies that saw our economy de-industrialised, emergency of ghost towns, rise of streets kids, rise in massive unemployment and widespread poverty.
The core programme such as the privatisation policy benefited foreign investors and foreign firms that obtained unfair tax concessions and long tax holidays.
Infact the IMF’s owned International Finance Corporation (IFC) also participated in the privatisation programme and scooped some lucrative shareholding in the newly auctioned companies.
The implementation of liberal and free market economic policies as prescribed by the IMF, relaxed foreign exchange regulations that saw huge capital flight from the firms that were purposely set up here in Zambia.
It troubles me when I see these economists and policy makers walk us into the same crisis pitfalls hoping that the IMF has changed and we, as a people, have changed!
HON SITUMBEKO MUSOKOTWANE’S BUDGET
The $10billion Budget was premised on an IMF deal. The Minister of Finance is expected to borrow up-to $4.2billion to finance the budget and he will open up another deficit to meet the obligations he intends to achieve.
Hon. Musokotwane has announced the employment of 41,000 teachers and health workers when Government is already spending 53% of its domestic revenue on salaries meeting the public service bill.
Infact,two items dominate the budget in 2021, it was the wage bill for public service workers and debt service.
On 3rd December, 2021, the IMF announced that it had reached a Staff-Level Agreement with Zambia under the Extended Credit Facility(EFC) for 2022-2025.
This Agreement would be taken to the board for approval and Zambia was expected to implement bold and ambitious economic reforms.
Following this agreement, the Minister of Finance announced that he will remove subsidies on fuel, will charge cost reflective electricity tariffs and will reduce the Farmer Input Support Programme(FISP) from 2.8% of GDP to 1%.
This is because the IMF has requested government to abandon spending on susbsidies that have been deemed to be inefficient public investment and poorly targeted subsidies.
Clearly the solutions offered so far will not inspire economic confidence that these measures will take us out of debt or grow the economy.
Blaming the Patriotic Front or hinging all hopes on the success of an IMF sponsored programme will yield nothing but more distress to the economy.
The apetite for new debt as shown by government’s intention to borrow $4.2billion in one fiscal year, is also worrying as the current debt has not been restructured, re-aligned or rescheduled.
CURRENT DEBT AND THE ROLE OF THE IMF
The World Bank Group assigns and classifies the world’s economies to four income groups—low, lower-middle, upper-middle, and high-income countries.
In the 1980/90s, Zambia had an unsustainable foreign debt of $7billion.
Zambia later benefited from a debt cancellation initiative.
The Jubilee Debt Campaign was a coalition that pioneered for the cancelation of all unjust and unpayable debts of the poorest countries.
Finally the G8 finance ministers proposed the Multilateral Debt Relief Initiative (MDRI).
The MDRI proposed to cancel debts of some of the world’s poorest countries owed to the International Monetary Fund, World Bank, and African Development Bank.
Zambia benefitted from this process and its foreign debt was substantially canceled in 2005.
Zambia left the Highly Indebted Poor Country (HIPC) group.
By 2010 the country had been posting economic growth of 6-10%, had accumulated adequate foreign reserves of four months cover, had stabilized its exchange rate and had a single-digit inflation rate.
Both the IMF and World Bank Group adjusted our classification.
We were now a low-middle income country by 2010.
There were ramifications, both lenders and grant-aid institutions including the IMF advised Zambia to go to the open market to borrow using and relying on our new sovereign rating.
Embassies that support poor countries left and we were literally left to ravages of the markets.
Yet our economy remained fragile and required more years of the stability recorded between 2005-2010.
The IMF facilitated Zambia’s and 12 other African countries’ path to the Eurobond markets.
With Africa’s and Zambia’s apetite for debt, we quickly accumulated a debt of $3billion from the Eurobond market alone in a period of five years.
We also accumulated about $5.8billion from China by 2020.
The other countries have also fallen to the same fate.
This was a disaster!
So when policy makers clammer for an IMF backing and solution, I shudder.
As both the SAP of the 1990s and the current experiments with market loans were programmes of the IMF!
Both our current economic crisis of high unemployment and lack of industries were spawned by IMF policies and the current foreign debt stock crisis is borne of their recent policies.
SOLUTIONS OUTSIDE IMF/WORLD BANK GROUP
We will remain members of both the IMF/World Bank Group like other 190 countries.
However, we don’t have to rely on their failed programs and experimantal policies.
Zambia should use its natural endowment in copper, cobalt, emerald and gemstones, and gold to resolve its economic crisis.
It should also realise its huge potential in both Agriculture and Tourism to turn around the sectors for economic benefits.
It should stop all financial leakages done where government resources are plundered, pilfered, stolen in well-established defrauding procurement schemes.
As stated earlier, Zambia loses an estimated $1billion annually through tax evasion and tax avoidance schemes by multinationals especially those in the mining sector operating in the country- (a Report; “Extracting Wealth-Extracting Minerals by War on Want”).
Entities such as Zambia Sugar and Glencore have been singled-out and have been quoted in these illicit financial flows reports.
The civil service reforms requires reforms and the wage bill that gobbles over 53% of our domestic revenue is unsustainable and unacceptable.
When will we serve the 18.2million Zambians if the 53% of our national income goes to pay emoluments for 200,000 people?
And these are not long-term policies as persuaded by lovers of the IMF.
IMF AS BASHIBUKOMBE
I have heard this arguement that because of our current public debt distress, we should engage the IMF to bring confidence to our creditors and impending foreign investment.
The IMF is being likened to a boy seeking to marry and employing the wisdom of elders.
I am afraid the IMF will take your wife-to-be.
We appear to assign the IMF a role that has in the past ended in disaster whether it was in Greece, Asia or Argentina.