By Speedwell Mupuchi
THERE are no hidden conditionalities being requested by the IMF, says the Ministry of Finance.
The ministry said this in several responses to questions by the Ministry of Finance online partners.
A partner asked the ministry, “Apart from the macroeconomic conditionality which were actually in line with government’s stance on its 2022 macroeconomic objectives, are there any other hidden conditionality we must expect from the IMF deal?”
The partner premised his query on sentiments from government officials concerning the removal of fuel and electricity subsidies.
In response, the ministry said the government and the International Monetary Fund (IMF) had focused on the need for the whole public sector to curtail inefficient public expenditure, including in State Owned Enterprises (SOEs) and agencies.
“The two parties have agreed that rationalising where and how the government spends public resources is an important part of the economic transformational agenda. In this regard, the removal of subsidies will facilitate an important shift in spending from poorly targeted subsidies towards greater investment in health, education, and the delivery of more social benefits such as: 1) Enhanced allocations for the Constituency Development Fund – meaning that more schools, desks, clinics, water boreholes, etc. will be available for rural communities,” it responded.
“2) Paying off all outstanding pension arrears – some beneficiaries have been waiting for several years for their retiring benefits; and,3) Hiring of 30,000 teachers, hiring of 11,000 health personnel, introduction of a bursary scheme and elimination of tuition fees for secondary school education, etc.”
It emphasized that subsidy removal was a measure that would enable realignment of public expenditure from poorly targeted choices such as fuel, to enhanced investments in health, education, and social protection.
“The outcomes favour our society’s less privileged. The government is also working on measures to streamline the licences and permits required by businesses in order to further improve the business environment,” it explained. “It is also important to note that although the government will continue to support small-scale farmers through the implementation of the Farmer Input Support Programme, the facility will be reassessed to address the embedded historical challenges. Following this, a comprehensive agriculture support Programme will be launched, commencing in the 2022/2023 agriculture season.”
The ministry said the new programme would be cost effective, better targeted, and equitable across beneficiaries.
Another partner asked about the status of Lazard on debt restructuring and the ministry said the government embarked on a debt restructuring exercise in 2020 and appointed Lazard Freres as financial advisors during the process.
It said the restructuring exercise was anchored on the G20 and Paris Club Common Framework, which was also underpinned by an IMF programme support.
It said following a period of discussions and exchanges with the Fund, the government recently reached a Staff Level Agreement (SLA) with the IMF which should culminate into an Extended Credit Facility that would provide financial support amounting to about US $1.4 billion, for three years.
“The SLA has also provided a basis for achieving consensus on the macro framework and the debt sustainability analysis that will inform the debt restructuring exercise. In view of the above, government will continue to work with the financial advisors, the IMF and all other stakeholders towards securing agreement with creditors on the debt restructuring exercise,” the ministry said.
However, a partner challenged the ministry to clearly state the advantages and the disadvantages of IMF Staff Level Agreement (SLA) and the removal of subsidies.
“Give a cost-benefit presentation on why the decisions are important,” urged the partner.
The ministry in response said the SLA would underpin government’s engagement with its creditors to restructure the debt.
It said the SLA was also expected to pave way for a formal programme with the IMF which would be a major step towards achieving the comprehensive debt restructuring needed to repair the economy and place it on sustained growth trajectory.
“The programme will help create fiscal space for Zambia to implement reforms and unlock highly concessional financing amounting to US $1.4 billion to be disbursed over a period of three years under the Extended Credit Facility. This will enhance the balance of payments position and further boost investor confidence; important components in the competitiveness of the economy,” it said. “The SLA will also pave way for restoring macroeconomic stability and provide a foundation for an inclusive economic recovery process.”
The Ministry said the removal of subsidies might temporarily increase the cost of doing business.
It said to reduce the cost of doing business, the government would implement counteractive measures such as improving the business environment and streamlining the number of licences and permits required for businesses.
“Subsidy removal is a measure that will enable realignment of public expenditure from poorly targeted choices such as fuel, to enhanced investments in health, education, and social protection. The outcomes favour our society’s less privileged,” the ministry said. “Regrettably, the capacity to service our loans and invest in development remains very limited and in the absence of restructuring, the country will continue to be choked by the debt burden. We reiterate that without the IMF programme, debt restructuring would practically be impossible as creditors would be unwilling to engage in refinancing discussions. We need the IMF Programme.”
And the ministry said discussions with the IMF did not centre on identifying or earmarking any public entity for privatisation.
“The government and the Fund, instead have agreed on the need for the public sector to curtail inefficient expenditure, including among State Owned Enterprises (SOE’s). The government is therefore undertaking a review of all public entities to rationalise expenditure to those entities, and where necessary, implement reforms for more efficient and cost-effective service delivery,” said the ministry.