By Edwin Mbulo in Livingstone
SECRETARY to the Treasury Felix Nkulukusa says Zambia ended up with the IMF because the G20 Common Framework for Debt Treatment gives a condition that any nation seeking assistance should have a programme with the fund.
And Nkulukusa says Zambia cannot afford to increase electricity tariffs from 7 cents to 11 cents as this will be a ‘shock’ and people will not manage.
In his lecture to local government senior officials during the launch of the Constituency Development Fund (CDF) Guidelines at Avani Hotel last week, Nkulukusa said in 2011, every K100 that government collected K11 was spent to service debt and the rest was for government operations including payment of salaries.
“In 2021 the cost of debt service went to 70 per cent of domestic revenues meaning that per every K100 that was collected domestically, K70 went for debt service while salaries for civil servants are at about 43 per cent of domestic revenue. So it means that K70 went to
debt servicing and K43 is supposed to go to payment of salaries. From every K100, we pay K70 to service debt and we go to the bank to borrow K13. Come 2020, 2021, all the people that were lending us money started refusing to lend us money because we were not sustainable and we chose to pay salaries before we service the debt,” he said.
“And therefore we started to think, how do we save if we can’t service all and we’re the first country post pandemic that defaulted on debt service because the cost of servicing the debt was too high. We can’t afford and all the projects that were being financed by our partners…the financiers stopped because we defaulted on the debt. And this is why we then had to say, how do we look at ourselves and we went to the G20 Common Framework for Debt Treatment and the condition was that we needed to have an IMF programme because they needed a referee that we are doing things right,” Nkulukusa said.
He said the IMF Staff Agreement signed in December had to go to the Fund’s board and Zambia had to show commitment from bilateral creditors.
“That even if we defaulted in payment before we are serious and our independent assessor and IMF has shown that yes we are on the right track and therefore we get commitment from our creditors that they will start giving us the money, otherwise all the projects will have to be on standby and we can’t get the money anywhere,” he explained.
“Now we are in the process of going to form what is called the creditor committee. We submitted our pre-restructuring debt sustainability analysis that is showing the levels at which our debt should be for us to be sustainable and we submitted this information to the IMF for them to assess whether what we are saying is true or not and how we will structure our economy going forward And should that be agreed with the IMF then we go to all the bilateral creditors
and we won’t go to them individually, we will go to them in the creditor committee and we go and present our case.” Nkulukusa said should this pass, under the fund agreement, Zambia would get special drawing rights of US$1.4 billion as a fiscal cushion while the country is still negotiating.
He said once this is done Zambia would go to each of the creditors and negotiate, “what we call a haircut, the forgiveness that will make us have a debt structure that we can be able to pay and we are hoping that we can achieve that and we come back on our programme and we go back to our vision 2030 and start growing to become a prosperous middle income country probably by fast tracking 2030 or probably we can then say we will delay that vision by at least by 5 or 10 years.”
He said Zambia’s commitment was to undertake structural reforms.
“We need to be prudent in our financial management and we need to enhance our finance mobilisation to meet the expenditure that we expect to meet,” he said.
Nkulukusa said Zambia needed to stop the bleeding that we have and one of them is the FISP.
“I was in the Ministry of Finance from 1999 to 2016 and we had the FISP project, one million beneficiaries, each beneficiary getting four bags of fertiliser and some seed and it was costing us K1 billion. In 2021, each beneficiary was getting the same amount of seed and fertiliser (as in 2001) that cost us K11.7 billion, the beneficiaries got the same amount of inputs, the impact on the ground; no impact. And we ask ourselves: should we go with such a programme and start asking for forgiveness from people that are lending us money when we cannot put our house in order or should we put our house in order as we go for help?” Nkulukusa said.
“We accept that it is a good programme, but it needs good targeting and it needs to be reformed so that it can deliver better and quality service to the people, not that we are going to cancel it. The second major reform is in the energy sector – fuel and electricity, the cost of production of electricity in Zambia is 11 cents per kilowatt per hour and Zesco is selling that electricity at 7 cents per kilowatt per
hour….”
Nkulukusa however said Zambia cannot afford to increase electricity tariffs from 7 cents to 11 cents as this would be a ‘shock’ and people will not manage.
On fuel, Nkulukusa said the commodity was expected to reduce if the exchange rate reduced.
“If we are careless and make the Kwacha start depreciating and fail to hold, the market exchange rate will automatically start increasing, so it is our duty to help this economy and move in the direction that we want,” he said.
On decentralisation, Nkulukusa said functions need to be devolved to local authorities.
He gave examples of China and India where decentralisation had worked very well.
“In 2004 we were supposed to do a sugar plantation in Luapula Province and we put K500 million in the budget through the Ministry of Agriculture and when we started implementing the budget, the ministry came to us and said please give us that money so that we start implementing that project and in April, we funded that K500 million. In July, deputy minister of finance including myself, we went to Luapula Province and we found Mr Evans Chibiliti who was PS and we were told only K184 million reached Luapula and we called the ministry why they asked for the money when only K184 was going to go to Luapula. They told us they did not trust the people of Luapula and therefore they gave them K184 and would release the rest later. The people of Luapula knew that government had released K184 and when we asked the minister what they had used the other money for, they told us that they had taken a tour to Mazabuka to understand what was happening there,” he said amid laughter from the delegates.
“Now you can imagine if we had directly released that K500 million, we would have had a sugar plantation today. Therefore, better decisions are made at local level.”