RESPONSE TO AMBASSADOR EMMANUEL MWAMBA’S CRITICISM OF DEBT RESTRUCTURING
By Alexander Nkosi
AMBASSADOR MWAMBA: It is a bad deal.
ALEXANDER NKOSI: What was a bad deal was borrowing heavily without growing the capacity of the economy to pay back. The biggest lesson from all this is that we need to ensure that borrowed funds grow the economy significantly so that we are able to pay back. Zambia defaulted in 2020. We are lucky that we benefited from debt service suspension following the negative impact of the pandemic. Anything that helps us reduce the current burden brought by this huge debt is good for the country, be it reduction in interest rates, increase in period of repayment, increase in grace period or haircut.
AMBASSADOR MWAMBA: In the last 3 years, Zambian Government has not been servicing it’s debt since December 2020. What have we done with the resources and savings that should have been directed to debt service? What happens now as we begin to pay the interests?
ALEXANDER NKOSI: It is not correct to say Government has not been servicing its debt. Government has been servicing multilateral and domestic debt. It is commercial and bilateral debt that has been affected by debt service suspension pending completion of debt restructuring. Regarding how government used funds freed by debt service suspension, take a close look at the annual budgets, the allocations will show you how government used that money. In the absence of debt service suspension, we could have either failed to do most of the things in the budgets or borrowed heavily to do them. Perhaps the question should be: how did we accumulate USD31.74b in total debt and interest arrears as at end of 2021 and ended up with a shrinking GDP and without capacity to pay back? We need to learn from this experience so that we can do better moving forward.
AMBASSADOR MWAMBA: Concentrate on raising domestic revenue by cancelling tax holidays and unnecessary incentives that have been given to the mining sector. By 2021, Zambia was earning over $1.1billion in tax revenue but is now earning $400million from this sector.
ALEXANDER NKOSI: The figures you used are not correct. I assume that you are comparing earnings for 2021 and 2022 because 2023 data is not complete. The correct figures are that in 2021 Zambia earned K25 billion from mining company income tax and mineral royalty tax while in 2022 the figure reduced to K22.7 billion. However, note that the average copper price in 2021 was USD9,301 while in 2022 it reduced to K8,813. Also note that production in 2021 was 837,996 metric tonnes of copper while in 2022 it reduced to 800,696 metric tonnes. While deductibility of mineral royalties did contribute to the reduction, you should have explained other key factors like reduction in copper production, prices and ore grade which played a huge part.
AMBASSADOR MWAMBA: So far total public and publicly-guaranteed debt has jumped from USD23 billion in December 2021 to USD32 billion in 2023.
ALEXANDER NKOSI: The figures you presented are not correct. In 2021 total public sector debt (including public guaranteed debt) was K30.93 billion and it increased to K31.63 billion in 2022. If we include interest arrears, in 2021 it was K31.74 billion and in 2022 it increased to K32.8 billion. Note that this increment is largely driven by disbursements to ongoing projects and programmes that were not cancelled.
AMBASSADOR MWAMBA: Negotiatiate for total debt cancellation, this deal offers no immediate benefits and merely postpones the problem.
ALEXANDER NKOSI: We need debt relief now. We cannot go on waiting for total debt cancellation that may take many years, it is a process we have no control over. Hence, the relief we have gotten is welcome as it will give us breathing space to grow the economy and be able to pay back.
Thank you.