The Centre for Trade Policy and Development (CTPD) is hoping that negotiations around the IMF financial support will be concluded within the course of 2019.
The center says or else Zambia should begin intensifying efforts in identifying alternative options through which it can restructure its public debt.
CTPD Executive Director Isaac Mwaipopo tells Money FM News that the Zambia government has for the past 3 years sought to engage the International Monetary Fund (IMF) for a bailout package of about US$1.3 Billion aimed at easing the current macroeconomic and financial challenges while the country implements urgent stabilization and fiscal reforms.
“The home-grown Economic Stabilization and Growth Programme (ESGP) and fiscal consolidation agenda are steps in the right direction but the IMF demand more before providing the needed support. There have been several rounds of discussion and negotiation over the IMF bailout package which have since stalled since 12th July 2018,” he said.
Mr. Mwaipopo states that what has been lacking is government commitment on the fiscal-side to reducing government expenditure.
He claims that increasing government expenditure on infrastructural projects such as roads and airports is simply not in tandem with fiscal consolidation, austerity and reducing the accumulation of public debt.
“With regards to general public perception, a number of citizens have expressed skepticism on government’s intentions to get a bailout from the International Monitory Fund following experiences lived in the 1990s. Under an IMF Programme then, the 1990s saw the Government cut spending, scrap subsidies, liberalize the exchange rate and privatize over 200 state-run firms. This “structural adjustment” was painful for many to take in: employment shriveled and, by the end of the decade, income per person had shrunk by 8%. While it is important to remember our past, there is need to recognize that both Zambia and the IMF have changed in many ways,” he added.
The CTPD Executive Director says since 2009 the IMF has acknowledged this shortfall in using a “one-size-fits-all” approach and has moved to an approach that identifies mutual performance areas and promotes national ownership of criteria – this approach is exemplified in the Ghana support package and was on the table for Zambia, as confirmed by the former Resident Representative.
He says this means, Zambia should have ownership of its own economic recovery policies, which can be agreed with the IMF, in order for the Fund to come on board.
“Although, in early, 2018 the IMF rejected Zambia’s plans and withdraw from further talks concerning a bailout package, Zambia has the option to go back to the IMF with proposals for fiscal consolidation that will suit the country’s needs,” said Mr. Mwaipopo.
“But why should Zambia be so interested in bringing the IMF on board? An IMF Programme provides lending at zero-or low interest for Zambia to cover its debt servicing costs, which have swelled to 25% of total expenditure. Such high rates of interest are squeezing spending on services citizens rely on such as education, health and social protection, as well as spending that supports businesses to grow.”
He explains that an IMF Programme also comes with benefits which are far more important than the Zero interest monetary Balance of Payment support.
“What can Zambia do to secure an agreement with the IMF? Zambia can secure an IMF bailout by practically implementing fiscal Discipline. The starting point would require the country to consolidate its fiscal discipline by returning to a cash budget and spend within its revenue generation capacity,” he further added.
Mr. Mwaipopo says there is need to restructure the current infrastructure development agenda in order to align it to the available resources and spread it over time.
He further adds that Zambia needs to design a debt repayment strategy that is specific, as to the amounts to be repaid and when, the source of the funds to finance it and how it will be generated.