Tag: debt

    Reality on Zambia’s total debt

    Reality on Zambia’s total debt Featured

    June 2, 2023 by Socialist Party Zambia in

    As at December 2022, Zambia’s public debt stood at $31.5 billion, excluding interest arrears on external debt and $32.8 billion including interest arrears of $1.3 billion since we have not been servicing the debt for close to 2 years.

    Of the $32.8 billion total public debt, $14.23 billion represents local currency domestic debt broken down as follows:

    • Treasury Bills $2.21 billion
    • Government Bonds $9.40 billion
    • Domestic Arrears $2.45 billion
    • Others $0.8 billion
      (Source Ministry of Finance)

    Government funds its day to day operations mostly from Treasury Bills and Government Bonds auctions which are now unfortunately failing as demonstrated in the last two Government Bond auctions.

    It’s very important also to note that domestic arrears mostly relate to local contractors who have not been paid. This partly answers the issue of lack of liquidity in the market as local contractors are not being paid.

    Our concern is that no one seems to be paying any attention to the the domestic debt issue. The risk on domestic debt default which will be catastrophic should it happen is not being addressed.

    How would such an event arise?
    If government fails to pay Treasury Bills and Government Bonds upon maturity a default can arise. Government uses part of the Treasury Bills and Government Bond auction proceeds to service the maturities. In the event that auction proceeds are not sufficient the treasury has to source funds elsewhere to service the maturities. Given the recent bond auction failures, treasury must be under stress to service these obligations and if the trend continues, then a domestic debt default could materialise.

    We should mention that on the unsecured $2.45 billion Domestic Arrears, a default has already happened as contractors are not being paid.

    We request the Ministry of Finance to provide us with a future outlook on how domestic debt is being managed. We need domestic debt reduction as much as we need external debt reduction, but this is being overlooked.

    Least be reminded that when debt restructuring is concluded the interest arrears of $1.3 billion will need to be paid. Even if a haircut is achieved, a substantial sum still needs to be paid together with principal arrears.

    The only way out of this dilemma is to increase domestic revenue mobilisation by abolishing mining tax exemptions, growing the domestic tax base, new industries coming on board, job creation, value addition and so on and so forth.

    Again, the call for a comprehensive economic plan which addresses issues raised above is urgently needed to address these serious concerns. Instead we are embroiled in a not so helpful graphs and Catholics debate and overlooking real issues.

    Fred M’membe
    President of the Socialist Party

    IMF offers us no viable exit from a permanent debt crisis.

    IMF offers us no viable exit from a permanent debt crisis. Featured

    May 13, 2023 by Socialist Party Zambia in

    Before the COVID-19 pandemic was announced by the World Health Organisation in March 2020, our poorer nations already struggled with seriously high – and unpayable – levels of debt. Between 2011 and 2019, the World Bank reported, “public debt in a sample of 65 developing countries increased by 18 per cent of GDP on average – and by much more in several cases. In sub-Saharan Africa, for example, debt increased by 27 per cent of GDP on average” (Marcello Estevão and Sebastian Essl, ‘When the Debt Crises Hit, Don’t Simply Blame the Pandemic’, World Bank (blog), 28 June 2022, (https://blogs.worldbank.org/…/when-debt-crises-hit-dont…).

    The debt crisis did not take place because of government spending on long-term infrastructure projects, which could eventually pay for themselves by increasing growth rates and allow these countries to exit from a permanent debt crisis. Rather, these governments borrowed money upon borrowed money to pay off older debts to wealthy bondholders, as well as to pay for their current bills (such as to maintain education, health, and basic civic services). “Among the thirty-three sub-Saharan countries in our sample”, the World Bank noted, “current spending outstripped capital investment by a ratio of nearly three to one” (Estevão and Essl, ‘When the Debt Crises Hit, Don’t Simply Blame the Pandemic’).

    When the pandemic struck, countries that had adopted the World Bank-International Monetary Fund policy to grow their way out of the debt crisis floundered. Growth rates shrank, which meant that debt volumes ballooned, and so these governments decided to borrow more and adopt deeper austerity policies, which dramatically increased the debt burden on their populations.

    Registering, in their own way, what is universally acknowledged as an intractable debt crisis in the poorer nations, the International Monetary Fund (IMF) warned that a serious banking crisis is likely to emerge (while ignoring the factors driving this scenario). “Our updated global bank stress test shows that, in a severely adverse scenario, up to 29 per cent of emerging market banks would breach capital requirements”, the IMF wrote in October 2022.(International Monetary Fund, Global Financial Stability Report – Navigating the High-Inflation Environment (Washington, DC: IMF, October 2022),https://www.imf.org/…/global-financial-stability-report…).

    This means that the context of high debt, high inflation, and low growth rates (with lowered employment expectations) could lead to the collapse of a third of the banks in the poorer nations.

    Neither the IMF nor the World Bank nor indeed any of the international financial institutions (IFIs) have any credible pathway out of this crisis. Indeed, the IMF report surrenders to reality as it tells central banks across the globe to “avoid a de-anchoring of inflation expectations” and to ensure that “the tightening of financial conditions needs to be calibrated carefully, to aim at avoiding disorderly market conditions that could put financial stability unduly at risk”. (IMF, Global Financial Stability Report, ix).

    The focus here is to keep ‘the market’ happy, while there is remarkably no care for the downward spiral of living conditions for the vast majority of the people on the planet. In its October 2022 Fiscal Monitor Report, subtitled ‘Helping People Bounce Back’, the IMF noted that while governments’ top priorities must be “to ensure everyone has access to affordable food and to protect low-income households from rising inflation”, they must not attempt “to limit price increases through price controls, subsidies, or tax cuts”, which would “be costly to the budget and ultimately ineffective”. (International Monetary Fund, Fiscal Monitor: Helping People Bounce Back (Washington, DC: IMF, October 2022), https://www.imf.org/…/2022/10/09/fiscal-monitor-october-22).

    In January 2023, the IMF’s World Economic Outlook predicted a slightly better, albeit ‘subpar’, growth forecast but warned of continued worries of debt distress in the poorer nations, writing that “The combination of high debt levels from the pandemic, lower growth, and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs”. (International Monetary Fund, World Economic Outlook Update: Inflation Peaking amid Low Growth (IMF, January 2023), https://www.imf.org/…/world-economic-outlook-update…).

    The antidote to debt distress, according to the IMF, is “fiscal consolidation and growth-enhancing supply-side reforms”, namely more of the same old austerity-debt trap. If the governments of the poorer nations are told not to use these basic tools (which are used routinely in the richer nations), their only choice – as far as the IMF is concerned – is to borrow in order to provide even low levels of relief to the very poorest people in their countries. Effectively, the IMF has surrendered to the prevailing reality and offers the poorer nations no viable exit from a permanent debt crisis.

    Fred M’membe President of the Socialist Party

    Statement of the Socialist Party on the Zambian government’s failure to honour its debt servicing obligations

    Statement of the Socialist Party on the Zambian government’s failure to honour its debt servicing obligations Featured

    November 18, 2020 by Socialist Party Zambia in

    On September 22, this year, the Minister of Finance announced that he had made a request to bondholders to suspend debt servicing for six months because Zambia was not in a position to meet her debt servicing obligations due on October 14, 2020.

    As you may be aware, 40 per cent of bondholders immediately refused to grant Zambia debt servicing suspension.

    The Zambian government had hoped that when 60 per cent of bondholders met last Friday, which was the last day of the one month grace period given to pay from the initial due date, the bondholders would agree with their proposals. But they too refused.

    Consequently, Zambia officially became the first country in Africa to default even if it had already defaulted on other unknown Chinese debt obligations.

    As the Socialist Party, we are concerned with the lack of seriousness from the Treasury when dealing with these important issues. We have plenty human resource that we have invested in as a country and worked at the highest level at of both the International Monetary Fund and the World Bank. It is an embarrassment to the nation that the Minister of Finance lied to the nation about his engagement with bondholders only for them to issue a statement the following day that there had been no direct contact between them and the Zambian government.

    Why did Dr Bwalya Ng’andu lie to the nation? Is he covering up on the debt that was borrowed under the cover of darkness?

    They say, ‘You can run but you can’t hide…You can fool some people all the time, but you can’t fool all people all the time.”

    Reality has finally dawned on this Patriotic Front government.

    What the international community is demanding is transparency on the Chinese debt obligations. The demand by the Minister of Finance through his representatives that bondholders should sign a non-disclosure agreement before he discloses the extent of Chinese debt and the conditions attached thereof should be of interest to every Zambian because this is public debt which you will all pay for.

    As the Socialist Party, we wish to announce to the nation that the reason why this government has since 2016 refused to open it’s books to the IMF on the Chinese debt is because that would reveal the Patriotic Front’s massive penchant for bribes. Most of the loans have inflated figures because of amounts a few greedy individuals collected as ”facilitation” fees. The International community is well aware of the extent of corruption and are now collaborating with bondholders to expose how corrupt this government is.

    Once that information on the Chinese debt is given, it will reveal how much money was shared and by who. At the moment, Ministry of Finance officials have been struggling to balance the figures before the IMF team comes in.

    Dr Ng’andu must not continue protecting criminals. There is no place for them to hide anymore.

    Dr Ng’andu has two options: It’s either he reveals the actual figures of the Chinese debt and Patriotic Front goes down so that we can protect our economy or he lets Patriotic Front continue hiding their nefarious acts and we all go down.

    Dr Ng’andu has to make that choice because time is of essence. Thankfully, since we cannot demand accountability and transparency from the powerful politicians and their fellow gangsters outside government, a far more powerful group has come to our rescue.

    Lelo balasebena ba pompwe mushibila nsala!

    Issued by Fred M’membe on behalf of the Politburo of the Socialist Party Garden Compound, Lusaka