ZAMBIA’S RISING DEBT - SHOULD WE WORRY?

ZAMBIA’S RISING DEBT - SHOULD WE WORRY? Musonda Kabinga Jesuit Centre For Theological Reflection (JCTR)

Presentation Outline • Who we are - JCTR • External and Domestic Debt • Govt’s Rationale for Borrowing • Increased Debt Levels: aSource of Worry or Not? • JCTR’ s position on Debt • Conclusion

Who We Are JCTR a faith based CSO organization involved in research, education, advocacy & consultancy on issues of social justice JCTR with other organizations involved in advocating for debt cancellation Hosted Jubilee debt cancellation campaign Zambia’s external debt cancelled under the HIPC and MDR

Who we are – Organizational Structure JCTR Social & Economic Development Faith & Justice Outreach Livingstone Monze Mongu Kabwe Ndola Kasama

Trend in External Debt Increase Source: Ministry of Finance Prior to the debt cancellation period under HIPC, external debt stock was around US 7 billion dollars

Trend in Domestic Debt Increase Domestic Debt Stock in K’billion rebased Source: Ministry of Finance and the 2014 Budget Address * Missing information

Financing for the 2014 Budget Its worth noting that about 10.51 billion of the 2014 budget will be financed from foreign and domestic borrowing Therefore, despite a significant increase in the 2014 budget, 24.6% of the budget will come from borrowing *Without doubt Zambia’s debt stock (external & domestic) is rising

Govt Rationale for Borrowing Infrastructure development (roads, rails etc), Delivery of social services (education, health etc) E.g US$ 750million Eurobond While the intentions are certainly in the strategic interest of the nation, there is need to be “cautious” so that we don’t overburden the future generations with the loan agreements we are signing now

The very fact that we have some sufficient breathing space (Debt sustainability – below 40% of GDP for external debt & below 25% of GDP for domestic debt) is no cause at all to allow for excessive borrowing Borrowing for investment should be seen to be matched by a careful balance of prioritization, fiscal discipline and a well articulated debt management framework

The Big Question “Increasing debt Stock, Should we Worry?” High debt levels Imply, high debt service payments which if not well managed could lead to serious consequences (*Lenders are business institutions with profit motive, no debt forgiveness, high interest payments on delayed debt service payments etc) Auditor General Report (AGR) for financial year of 2012, reveals US$123 million debt not serviced. (*AG 2012 report “its difficult to ascertain whether there is an effective monitoring and mgt of bonds by MoF”) Without an effective monitoring framework of debt, it would be difficult to know the true levels of the country’s indebtedness

The Big Question “Increasing debt Stock, Should we Worry?” Essential sectors of the economy will be affected in due course owing to a potentialfuture shift in national spending which will be directed towards servicing of the loans that are currently being contracted JCTR study: “Responsible Borrowing”, US$ 290 million per year spent on debt servicing, btn 2003 and 2005 The most vulnerable sector that is sacrificed in favor of debt servicing is the social sector (* E.g Cuts in Social sector spending during the HIPC period AFFECTED the effective delivery of health & educational services)

Cuts in social sector spending could worsen the already existing poor state of health & education services in some rural areas. E.g Shangómbo Mulele Area, Shangómbo the CURRENT state of social services; Source: JCTR Rural Basket, March 2013

The Big Question “Increasing debt Stock, Should we Worry?” Where and How are we Investing the Borrowed Resources? . Roads, Rail etc Improving these sectors could lead to increased investments. However, delays in procurement of key equipment & services, reported mismanagement of funds *e.g the case of ZRL. This could delay progress on some rail and road works. .Delayed works on these road & rail projects would entail reduced capacity for the country to generate more revenues to service debts

The Big Question “Increasing debt Stock, Should we Worry?” With the potential depreciating of the kwacha, against major foreign currency particularly the US$ dollar external debt service payments could cost more Resources to finance debt servicing will come from taxes. However, with few taxes collected in the informal sector, the formal sector will be overburdened with higher taxes in order to finance debt servicing Zambia has a young population that will need to be employed in the next 10-20 yrs, public sector still the largest employer. (“this population could delay to enter the labour market in order to provide fiscal space for govt to service debts”)

JCTR Position on Debt Status The Loan contraction process still lacks transparency and wider participation of the public as it has remained the preserve of the Executive (*Without transparency and wider public participation its difficult for the public monitor the utilization of debt resources) The Laws and policies that governed loan contraction and management prior to debt cancellation in 2006 still exist. Some of these laws give too much borrowing powers to the Minister of Finance with limited stakeholders consultation. There is need to comprehensively review these pieces of legislation Zambia can still raise sufficient revenues to finance development projects by reviewing the whole national revenue collection structure

Conclusion Borrowing should take into account the country's capacity to pay without affecting the delivery of essential services to the public The loans that are contracted must be subjected to Parliamentary oversight and their use verified. (*Inclusion of this provision in the draft constitution is a step in the right direction) Only an effective debt management framework will guarantee a responsible borrowing strategy that takes into account; provisions for debt servicing, priority sectors to invest borrowed resources, extensive parliament involvement , etc

THANK YOU FOR YOUR ATTENTION www.jctr.org.zm

ZAMBIA’S RISING DEBT - SHOULD WE WORRY?