|19. October 2015
IMF warning on National Prayer Day amidst economic crisis
Zambia hold a day of prayer and fasting on Sunday, with bars shut and football matches cancelled, to seek divine help over the country's currency collapse and dire economic woes.
President Edgar Lungu last month ordered the national prayer session after the kwacha fell 45 per cent against the dollar since the start of the year due to a sharp drop in the price of copper, the country's main export.
Food prices have soared and crippling power shortages have also been triggered by low water-levels in Lake Kariba, where hydropower plants supply much of the country's electricity.
"God is a god of miracles and if we ask him, he will bless us and the kwacha shall be restored to its former strength and the prices of goods shall again go down," Bishop Simon Chihana, president of the International Fellowship of Christian Churches in Zambia, told AFP.
IMF country representative Tobias Rasmussen however called Zambia's accumulating public debt position in recent years a source of concern which will significantly increase the country’s risk of falling into debt distress. And the IMF also says the government’s target to reduce the fiscal deficit to 3.8 per cent of GDP next year is “ambitious” given the number of unanswered questions relating to new revenue measures.
With the government’s issuance of a US$1.25 billion Eurobond in July, the country’s external debt stock has been pushed to over $6 billion, shifting Zambia’s position closer towards the suggested threshold of 40 per cent for developing countries.
Finance minister Alexander Chikwanda, however, told Parliament during presentation of the 2016 national budget that the government is committed to maintaining public debt within sustainable levels, and pledged to “significantly limit” domestic borrowing and focus on accessing external financing with lower interest rates and lower repayment periods.
But Rasmussen stated that the increase in Zambia’s public debt position is a source of concern, with continuation of the recent trajectory significantly increasing the country’s risk of falling into debt distress. “The increase in public debt in the last few years is a source of concern. Although the increase has been from a relatively low level of debt, continuation of the recent trajectory will significantly increase the country’s risk of falling into debt distress,” he stated in response to a press query.
Rasmussen stated that the availability of external financing has reduced with costs of borrowing increased, as seen from the recent issuance of Zambia’s third Eurobond.
“The availability of external financing has recently reduced and costs of borrowing have increased. This is seen in the yield on Zambia’s latest Eurobond in secondary trading, which has increased from 9.375 per cent at issuance in July to over 11 per cent in recent weeks,” he added.
“This is a reflection of market sentiment having moved against emerging markets generally and more specific concerns about Zambia’s economy, including how the mining sector will fare in light of lower copper prices and how electricity shortages will be managed.” The government has turned to borrowing from commercial sources at much higher interest rates to finance its ambitious road infrastructure project.
But sources within the Ministry of Finance have criticised the move, saying the best way to handle such huge projects would be to arrange low cost financing with other governments such as the Chinese and the Japanese or engage the IMF to assist. “We are failing to involve even institutions like the IMF and World Bank to source financing because these two will attach some conditionalities which our leaders are not ready to abide by, such as cutting down on unnecessary expenditure. When you get money from the IMF or World Bank, the two institutions will keep an eye on you to ensure the money is being prudently used, and also, they will advise on how it is spent. Now, the easiest way for this government is to borrow from the commercial market, where they can even decide not to use the money for the intended purposes,” said the Ministry of Finance sources. And Rasmussen also doubted the possibility of government to achieve its target to reduce fiscal deficit to 3.8 per cent of GDP next year.
“The deficit target of 3.8 per cent of GDP is ambitious and there are still a number of questions about what the plans are for achieving this result, especially in regard to new revenue measures. Challenges in the mining sector and slowing overall economic growth generally does make it more difficult to raise revenue and it will also be challenging to keep expenditure within the budget,” stated Rasmussen, adding that reducing the deficit is critical in order to eliminate what has been a key imbalance in the economy, bring needed stability and help to reduce high interest rates.
(The Post, Lusaka)