Without a home grown economic recovery plan supported by an IMF loan there will be significant adverse consequences for Zambian households and the Zambian economy, says the Zambia Institute for Policy Analysis and Research (ZIPAR) in a policy paper published today.
ZIPAR fully endorses the Zambian government’s desire to put in place a Zambian led economic recovery plan. Without the ‘Zambia Plus’, the overall debt level will keep growing to exceed sustainable thresholds from an average of merely 23% of GDP during the period 2007-2014. More borrowing will see further more resources spent on paying down the debt. In 2017 alone, for example, the Budget allocated almost a quarter of the budget to debt servicing and arrears payments. This is the equivalent of over ZMW15 billion that could otherwise be spent on tackling poverty or supporting economic growth.
The poor have already been hit the hardest. ZIPAR analysis of the implementation of the 2015 Budget reveals that the cost of debt repayment squeezed spending on the services for ordinary Zambians, with the most significant underspends hitting social cash transfers, the economic empowerment fund and the public service pension fund. The absence of an IMF supported economic recovery programme will deal a heavier and longer lasting blow to the lives of the poor and ordinary Zambians in general.
A credible home grown economic recovery programme is essential to instill fiscal discipline, create conditions for growth, and support poverty reduction. To support this ZIPAR stresses that Zambia should seek support from the IMF. Zambia is eligible to access up to US$1.3 billion interest-free financing from the IMF. Coincidently, this is similar to the total external debt repayments of US$1.36 billion which Zambia faces over the next two years. IMF funding will go a long way in alleviating Zambia’s external position challenges and therefore free up some fiscal space for Zambia to maintain spending on priority social protection and infrastructure programmes, thus smoothing the recovery.
ZIPAR reiterates that realistically there is no better alternative to an IMF loan to support the Zambia-led economic recovery programme. The option to look to the international markets bears high risks of unsustainable debt. Fitch Ratings – an agency which assesses a country’s economic fitness - recently indicated that despite some economic improvements the outlook for investment in Zambia remains negative so that borrowing is likely to remain quite expensive.
Not doing anything to support a home grown recovery programme is not an option. The economic recovery remains fragile with Zambia’s growth rate forecast to remain modest, at around 4.3% on average over 2017 and 2018. Even rising copper prices will not be enough to ensure recovery. And as history shows it would be unwise to pin recovery on such a volatile commodity.
The case for an IMF supported Zambia Plus is overwhelming. However, success will require more than a clear well-funded programme. To ensure that recovery stays on track and policies to reduce excessive spending, support growth and reduce poverty are implemented accordingly, the programme must also be underpinned by strong, rational and accountable institutions and policy-makers, backed by social and political restraint.
Notes to Editors
- This is based on the ZIPAR policy brief 2017 Economic Distress and the Inevitability of an economic Recovery Programme.
- ZIPAR is a socio-economic think-tank whose mandate is to conduct research and policy analysis in order to provide objective, credible and timely policy advice to support the policy process in Zambia. ZIPAR was established by the Government Republic of Zambia (GRZ) with the support of the African Capacity Building Foundation (ACBF).
Contact: Euphrasia Mapulanga-Ilunga, Knowledge Manager-ZIPAR.
Phone: +260-211-252559 or +260977 445864,