The government of the Republic of Zambia has announced a new set of austerity measures aimed at putting the country’s economy back on its rails, among them suspension of contraction of new non-concessional debts and cancellation of some signed but undisbursed loans.
The decisions were made during an emergency Cabinet meeting convened by President Edgar Lungu on Monday where key on the agenda was the country’s economic situation. This meeting came after the Head of State’s announcement that the prevailing economic conditions were a source of worry and made mention that an emergency Cabinet meeting needed to be held to find solutions to the current situation. A full brief on the state of the economy was given and Cabinet decided on measures to be taken to restore the macroeconomic stability, debt sustainability and ensure that growth is restored on an upward trajectory for the benefit of Zambians.
Among the key decisions made by Cabinet, which finance minister Margaret Mwanakatwe announced on Tuesday, include an agreement that the fiscal deficit needs to be reduced to sustainable levels.
“Cabinet also noted the impact of the increase in debt service payments on the budget and the need to reduce this expenditure, the build-up of domestic arrears and the tightening of liquidity on the domestic market. In order to address these issues, Cabinet directed that: 1) The Minister of Finance to present to Cabinet at its next sitting a list of project loans to be considered for slowing down, postponing and Cancellation. In doing so, projects that are of an economic nature will not be cancelled as resumption of growth is important to address the current challenges. However, management of disbursements on these loans will be important. This will be in accordance with provisions in the contracts; 2) Cabinet directed that legal reforms such as the enactment of a new Public Procurement law should be hastened to ensure value for money and that Ministries should improve on contract management; and, 3) Cabinet also directed that no Ministry, Province, or Spending Agency should contract goods and services without availability of funds even if it is budgeted for to stop the accumulation of arrears. To this effect the Treasury was directed to issue strict guidelines on the matter,” Mwanakatwe told a media briefing in Lusaka.
According to her, the Treasury was also directed to ensure that the measures above are implemented expeditiously to facilitate the sourcing of external funds to finance critical expenditures in the 2019 budget that are required to support growth. Other Cabinet decisions were that government indefinitely postpones the contraction of all new non-concessional loans in the intervening period; cancels some signed but undisbursed loans; increase the control and management of disbursements on foreign financed loans; and, reduce the deficit to induce lending to the private sector. The Minister of Finance has since been directed to present to Cabinet a list of loans to be considered for cancellation, postponement and slowdown for consideration.
The International Monetary Fund last month was in the country for its Article Four visit where they subtly and carefully gave us a picture that should the country not put any breaks on its borrowing and focus on enhancing economic growth, things will worsen. The IMF team has projected our growth to slow from 3.7 per cent in 2018 to 2.3 per cent in 2019, lower than earlier envisaged due to the impact of the drought on agricultural production. Additionally, inflation is close to the Bank of Zambia’s upper band and is projected to rise over the course of 2019 while reserves stood at 1.7 months of imports at end of March 2019. It further raised concern on the large fiscal deficits, financed by non-concessional debt.
The 2018 budget deficit (commitment basis) reached 10 percent of GDP (7.5 percent on a cash basis), and total public and publicly-guaranteed debt, including domestic arrears at end-2018 was 73.1 percent of GDP, IMF stated.
These issues raised by the IMF during their last visit are what have essentially been attended to by the government going by the resolutions of Monday’s Cabinet meeting. More austerity measures were definitely needed to make things work, although things have reached a level that would send citizens into total panic.
One thing that mustn’t be ignored is the government’s desire to bring the economy back to where it should be, ensuring that all stakeholders enjoy its benefits. The fact that President Lungu ordered that an emergency Cabinet meeting be held to discuss the country’s economy is consolation and assurance that the executive has got this covered and they are ready to do all its takes to resolve the problems.