Statement of the Socialist Party on the Economic Recovery Plan Featured
In 2011, we the people of Zambia decided to change the stewardship of our economy from the MMD to PF. This was on the promise that the PF would bring about a vigorous and unrelenting fight against poverty. We can only assume now that the PF’s campaign in 2011 was never meant to be implemented as all the economic fundamentals have been deteriorating few years after they took over the Government.
From the time the PF formed Government and more interesting since President Edgar Lungu took over the presidency of the country in 2015, economic performance has been deteriorating year after year and now Zambia does not only face an economic recession but has also become the first country to default on its debt service post COVID.
What is interesting is that the PF Government led by Mr. Lungu cannot take responsibility but want to blame climate change and now COVID 19 for all its economic management failures. And in their pompous and arrogant manner, they have constantly snubbed good sound advice, be it from the International Monetary Fund (IMF), Civil Society Organisations, the Church, think Tanks or from the general citizenry. And any person with a different view is branded as bitter or a sympathiser of the opposition. This has led to the rise, in huge proportion, of a culture of personality cult whereby the President’s name has to be mentioned countless times in policies or political speeches and sycophants and demagogues of all shapes and sizes have been rewarded with jobs beyond their mental capacity in the name of political patronage and at the expense of economic development.
After playing hide and seek for too long, there is now no space for the PF to hide about how they have messed up the economy. Time has exposed how careless, thoughtless, weak and mediocre this government has been. We are happy that even if they have now shifted the blame from Climate Change to COVID-19, at least they have admitted that the economy is in dire stress.
With this admission, came the Economic Recovery Plan, which the PF Government launched last week.
In our view, as Socialist Party, however, we think the Economic Recovery Plan that was launched by the President fails the test of a responsive, robust and relevant programme that can competently address Zambia’s current challenges. At best, this plan can be described as a mere Statement of Intent with a detailed shopping list of activities and objectives that neither match the current reality nor build on past programmes.
We are however not surprised, as we know very well that the PF does not have a well-coordinated economic agenda. They have always been pursuing haphazard economic policies with disastrous results.
But before I talk about the Economic Recovery Programme, let me take this opportunity to show you, the people of Zambia, how the PF has failed to run the economic affairs of this country.
You will all recall that in 2005, we as a people embarked on ‘The Vision 2030’ whose objective was for the country to become ‘a prosperous middle-income country by the year 2030. With this Vision and the reintroduction of national development planning to operationalise The Vision, we embarked on the Fifth National Development which ran from 2006 to 2010 under the MMD Government. During this period, the country managed to achieve macroeconomic stability. The economy grew at an average of 6.4% per annum. Inflation was reduced from 15.9% to 8.2% while exchange rate stabilised and averaged K4.40 per one United States dollar.
As a result of this strong macroeconomic performance and sustained growth during the FNDP period, the country managed to attain a per capita income of above US$ 1,600. On this basis, World Bank reclassified Zambia as a Lower Middle-Income Country in 2011.
In the same year, 2011, when Zambia was reclassified as a lower middle-income country, the PF was voted into Government. As a Party in Government, the PF promised to maintain the same economic growth trajectory. However, economic growth, which averaged 6.4% during the FNDP period, immediately started a downward spiral and particularly so when Mr. Lungu took over the Presidency. From a growth of 7.6% in 2014 for instance, economic growth plummeted to 2.9% in 2015 and has since been deteriorating year in year out, reaching to 1.4% in 2019 and is now projected to be negative 4.2% in 2020.
On the fiscal side, one would say that the Edgar Lungu Government just decided to through away fiscal prudence and replaced it with reckless borrowing in the name of infrastructure development when we all know that the ulterior motive has been to create expenditure lines for corruption. As a result, we see fiscal deficit, which basically is borrowing to finance the budget increasing from an average of 2.5% of GDP per annum during the FNDP to an average of 5.4% of GDP per annum during the Sixth National Development Plan, which was the first planning period for the PF Government. Borrowing has worsened even further during the Seventh National Development Plan, under Edgar Lungu led PF Government, and has averaged 8.9% of GDP per annum.
The PF Government’s excessive appetite for borrowing has resulted in higher debt service costs. For example, statistics from the Ministry of Finance statistics, have shown that by end of this year (2020), debt service costs will have increased to US $3.3 billion which is equivalent to ZMW 69.3 billion (at the current exchange rate of K21/US$). This means that all the domestic revenue collections in 2020, which the Ministry of Finance has revised to K65 billion, will not be enough to service the debt, thus the Government will have to borrow K4.3 billion to add on in order to meet its debt obligations for 2020.
What has this PF Government’s excessive borrowing done to the country?
- It has made Zambia become a Highly Indebted Poor Country again. Excessive borrowing has increased Zambia’s public debt from 20.8% of GDP when the PF took over Government in 2011 to more than 100% projected for 2020; and
- The PF Government has basically put Zambia on the world map for the wrong reason, being the first country to default on its debt service post COVID 19. The high debt has resulted in higher costs of debt service which the PF Government unfortunately has now failed to manage. For the first, the country has defaulted on its debt service obligations.
As a result of the PF Government’s recklessness in borrowing and in its economic management, the Zambian Kwacha has continuously been under pressure. The Kwacha has devalued from an average of K4.22 per one United States Dollars during the FNDP period to over ZMW 21 per on United States Dollars now.
What does this devaluation of the Kwacha mean to ordinary Zambians? It means that Zambians have lost the purchasing power. They can no longer buy the same amount of goods or services with their salaries which have not increased to proportion to the Kwacha depreciation.
Let me now talk about the Economic Stabilisation and Growth Programme which was dubbed the Zambia Plus. This is the programme that the PF Government put in place in 2017 immediately after winning the 2016 elections and which they are claiming is been succeeded by the Economic Recovery Programme, which will run from 2020 to 2023.
To put it blunt, Zambia Plus was a failed project mainly because it lacked political will. It talked about fiscal consolidation and targeted to reduce borrowing to finance the budget from 7% of GDP in 2017 to 4.1% of GDP by 2019. To achieve, the Government committed to reducing the budget expenditure from 27.7% of GDP in 2017 to 22.8% by 2019 while at the same time increasing tax revenues to 18% of GDP.
In addition, the Zambia Plus proposed some structural reforms including:
- amendment of the Loans and Guarantees (Authorization) Act to strengthen oversight on debt contraction;
- amendment of the public procurement act to enhance transparency and accountability in the procurement process so as to ensure value for money; and
- introduction of the Planning and Budgeting Bill to improve public investment management and limit borrowing to projects with higher economic rates of returns.
Come implementation of the Zambia Plus, we note with sadness the lack of political will. First, instead of fiscal consolidation which meant reducing budget expenditure as a share GDP to 22.8% in 2019, expenditure increased to 28.9% of GDP in 2019 further increasing to 32.4% in 2020 and now 32.6% of GDP projected for 2021.
Second, instead of reducing fiscal deficit from 7.0% in 2017 to 4.1% by 2019, the Government has been increasing its borrowing. By 2019 borrowing had increased to 9.6% of GDP and is now projected 11.7% of GDP in 2020.
Third, instead of undertaking structural reforms and amend the relevant pieces of legislation on debt contraction and management, public procurement and budgeting, among others, the PF Government simply ignored all these and instead embarked on a very futile exercise of wanting to introduce Bill 10 to consolidate their hold on power.
Let me now turn to the Economic Recovery Plan that the President launched last week.
Our thinking, as the Socialist Party, was that the Economic Recovery Plan would renew the hope and confidence of the Zambian people in the economic recovery of the country. Unfortunately, the PF’s Economic Recovery Plan, in our view fails the test of a responsive, robust and relevant programme that can competently address Zambia’s current challenges. At best, this Plan can be described as a Statement of Intent with a detailed shopping list of activities and objectives that neither match the current reality nor build on past programmes.
However, this is not surprising to us as we know that the PF does not have a well-coordinated economic agenda and has been pursuing haphazard economic policies with disastrous results.
In our view, the economic recovery plan will not be able to achieve its objectives for the following reasons:
- Given the diminishing fiscal space as a result of the rising debt which has caused high debt service costs and has ultimately resulted in debt payment default, there is need for a more structured and detailed financing plan of the economic recovery programme, which we do not see in this plan;
- Assuming this Plan was to be implemented, the PF time to implement it is so limited. They have less than a year in office and are doing all they can on the expenditure side to try and hoodwink the people through excess expenditure on infrastructure. As such fiscal discipline will be a challenge.
- The plan lacks the details and does not answer the how questions. For example, it does spell out what exactly will be done to reverse the downward economic spiral especially given the diminishing fiscal space as a result of the higher debt service costs; and,
- Given that the PF Government failed to garner political will to implement the Zambia Plus even when the elections were only to come after four years, what would make Zambians believe that this time around and with only a few months before the elections, the PF Government will have the political will to push this agenda? We doubt that there will be political will to implement the plan more so this time around when the elections are just the corner.
In conclusion, I want to emphasise that the Zambian economy is in a crisis, is unstable and in recession, the first since 1998. More than, ever, it calls for leadership – credible and committed leadership to respond to the immediate and urgent needs of Zambians. We had assumed, apparently, incorrectly, that the PF government’s so-called Economic Recovery Plan would, for once address the challenges that we are faced with. Alas, it has turned out to be another talk show document that does not reflect any seriousness or commitment to addressing the country’s economy challenges.
The PF Government has truly failed the people of Zambia. It has failed to rise to the to the occasion. As we draw closer to 2021, it is time for the Zambians to open their eyes and make sure that they do not allow a visionless leader to continue to lead. As the Socialist Party, we have a clear and precise Vision for the economic recovery, which we will be sharing. We are ready and committed, and we believe that we can provide workable solutions to Zambia’s current challenges.
Delivered by DR Ngenda Mwikisa – General Treasurer and Second Vice President