PeP’s Sean Tembo asks: “Does Zambia really need an IMF bailout loan?

Finance Minister Dr. Situmbeko Musokotwane meets IMF in Lusaka on Tuesday 31st August, 2021

DOES ZAMBIA REALLY NEED AN IMF BAILOUT LOAN?

By Sean Tembo – PeP President

1. DURING his interview on ZNBC last weekend, President Hakainde Hichilema’s newly appointed Minister of Finance Hon. Situmbeko Musokotwane stated that his ministry’s first order of business is to put the country on an IMF programme so as to access an IMF bailout loan. From as far back as 2016 when Hon. Felix Mutati was appointed as Minister of Finance by former President Edgar Lungu, and subsequently applied for a US$1.5 billion IMF bailout loan, l have been strongly opposed to any such loan, let alone one from the International Monetary Fund. I argued then and l will argue now that Zambia does not need any bailout loan. Infact, that is one of the major policy differences that l had with President Hakainde Hichilema even during the time that l was in the Opposition Alliance.

2. President Hichilema believed then that Zambia needed to go on an IMF program and access an IMF loan, which according to him, would be cheaper as it would be procured at a lower interest rate, and could subsequently be used to replace the country’s existing external debt which is more expensive as it has higher interest payments. I’ve debunked this line of reasoning on various occasions in the past, but l don’t mind doing it all over again now.

3. The starting point perhaps is; what really is an IMF programme? Well, an IMF programme is an IMF loan plus IMF conditionalities. We are all familiar with what a loan is, so perhaps it is the IMF conditionalities that l need to dwell on. You see, unlike other lenders such as the Eurobond who will lend you money and leave it up to you to figure out how to pay it back, when the IMF lends you money, they also impose their conditions on how you should run your economy. Mostly these conditions tend to revolve around austerity measures whereby they dictate what your national budget should be, which sectors you should spend money on and which sectors you should cut out in terms of funding. In other words, when the IMF gives you a loan, they also take over the running of your economy until such a time that you have fully settled your loan. The Government becomes a spectator in the running of its own economy. Of course this raises the issue of sovereignty. Am sure many Zambians will agree with me that we might be a poor country, but we prefer to have fellow Zambians running the affairs of our country. Fellow Zambians whom we can hold accountable at the ballot.

4. The other interesting point that you might wish to note is that when the IMF gives you a loan of say US$4 billion, they will not give you a lump sum of the entire amount. They will give you small installments of say US$250 million per quarter after you achieve specific milestones of their conditionalities, which might read as follows;

Milestone 1 = enforce a wage freeze for the civil service
Milestone 2 = privatize ZESCO and Zamtel
Milestone 3 = enforce an employment freeze for the civil service
Milestone 4 = freeze all new infrastructure projects
Milestone 5 = freeze all welfare programs such as Social Cash Transfer and Farmer Input Support Program

Etc.

This means that, contrary to President Hakainde Hichilema’s assertion that getting an IMF loan will allow the country to substitute expensive debt with cheaper debt from the IMF, the installment nature of IMF disbursements would make that impossible because a loan of US$4 billion will end up being disbursed over a five year period.

5. But the real question is; do we really need an IMF loan? Or more specifically, do we really need to put this country on an IMF programme? I think not. In my view, what we really need to do is to seal the various revenue leakages for tax and non-tax revenue. Once we do that, this country has the capacity to collect enough revenue needed to pay off our debts. Plus such an approach will be sustainable for the long term. I mean, an IMF loan is a once off activity, what will happen after we eat whatever money the IMF will give us? What next? But by applying our resources and energy to sealing off these revenue leakages, we will be making a lifetime investment for this country. You see, what happens is that instead of the major taxpayers paying their fair share of tax to the treasury, they pay only a small fraction and then pay bribes to senior Government officials including the President. These Government officials then use these bribes to finance the ruling party during elections. This happened during various administrations of the MMD government, and it happened during the various administrations of the PF Government. It is a well-known scam. That is one of the reasons why l have been very opposed to the bringing back of Hon. Musokotwane as Finance Minister because he is very knowledgeable on how this scam works. He used it under Rupiah Banda’s administration and he will not hesitate to continue using it from where the PF left it. The only question is whether this is a deliberate ploy by President Hichilema to try and recover some of the money which the UPND spent during the 23 years that they were in office. If President Hichilema deliberately chose Hon. Musokotwane so that this scam can go forward, then l feel sorry for the Zambian people. If not, then the President should reconsider his choice of Finance Minister.

6. As an illustration to my point above, some time in 2017, the Zambia Revenue Authority embarked on a project to do a forensic audit of mining companies. They identified a total of 13 entities which they categorized as major mining companies. They commenced their audit with a mining company based in Solwezi and proceeded to raise an additional tax assessment of about ZMW8 billion. That is tax which ZRA said this company had underpaid. And do you know what happened next? Before any of the representatives of the company could say anything, the first person to condemn the ZRA assessment and label it as baseless was the Minister of Mines, followed by the Minister of Finance. You’re wondering why Government would be undermining its own agency and siding with a private company right? Well my thought too. Subsequently the planned forensic audits were all cancelled and that K8 billion ZRA assessment died a natural death. However, for argument’s sake, supposing we multiply that K8 billion by the 13 entities that were earmarked for a forensic audit. That gives you approximately K128 billion in lost government revenue per year. To contextualize that, Zambia’s 2021 national budget was only K119 billion. That is the reason why our tax-revenue to GDP ratio of 14% for 2021 is the lowest in the region compared to a SADC average of 25%. It is because most of our tax revenue does not end up in the treasury but ends up in the pockets of senior Government officials including the President, and is used to finance the chipanj during elections. And President Hichilema believes we need to get an IMF loan? No, what we need is to seal these revenue leakages. Unless of course President Hichilema intends to instal himself as a new beneficially of our revenue leakages. So that he can recover what he has invested in his struggle to be President over the past 15 years?

Dr. Situmbeko Musokotwane meets IMF

7. However, before we stray too far, let us examine the main reason advanced by President Hichilema’s Finance Minister for insisting on getting an IMF bailout package. According to Hon. Musokotwane, the country needs an IMF so as to instill confidence to foreign investors. But it is the same Minister who recently argued that the reason why the Kwacha has appreciated from about K23 to the current K16 per US$ is because of investor confidence. So if there is already investor confidence then what additional confidence do we need? Personally l believe that President Hichilema currently enjoys a lot of international goodwill and it will not be a problem for the country to refinance the Eurobonds that are due next year as well as those due after that. So we don’t really need an IMF loan. Besides, the IMF recently gave a grant to all its 190 member countries, of US$650 billion and our share of that grant was about US$1.33 billion. That’s a shot in the arm. At the time of President Hichilema’s inauguration, our gross foreign reserves were slightly above US$3 billion due to the SDR allocation, which is the highest amount of GFR in the past 13 years. So President Hichilema was not entirely truthful when he said that he had inherited a country with empty coffers. Actually he has a very good starting point, considering the high copper prices which are likely to sustain due to the demand for electric vehicles in which copper is a key component. President Hichilema has a good starting point and it’s for him to mess it up.

8. Lastly, l want to put it on record that the reason we provide checks and balances is because we love this country and we want President Hichilema to succeed, because we know that when he succeeds, Zambians would have succeeded to and Zambia as a nation will be a success story. If we did not love our country and our President, we would not have been giving him the advice that we painstakingly do. We gave similar advice to former President Lungu, and its a pity that he ignored most of it. We hope that our new President Hichilema will not follow in the footsteps of his predecessor when it comes to advice. I must say that l am so far disappointed with President Hichilema’s supporters who have responded with rage and violence to the advice and checks and balances which we have so far provided to the new Government. One of these people, a Mr Bernard Hamanyuma of phone 0972636633 has even gone to the extent of issuing death threats against us.

Zambia’s Second Female Vice President Reverend Mutale Nalumango with Special assistant to the President for Press and Public Relations, Anthony Bwalya and 7th Republican President, Mr. Hakainde Hichilema

Our message to President Hichilema’s supporters is that as an opposition political party, it is our mandate to provide checks and balances. Sometimes they might like what we say, sometimes they might not like what we say, but we need to coexist in the spirit of One Zambia One Nation. Others have insinuated that the reason why we have been very assertive in providing checks and balances to the new administration is because we want a job from them. But let the record show that our assertiveness in providing checks and balances started from the time that the PF was in Government. I was personally assaulted by PF cadres in Cairo Road in 2019, for protesting against the US$42 million fire trucks scandal. I was arrested at Parliament in September 2017 for protesting against PF corruption. I was subsequently arrested on various other occasions during the PF regime, for various fabricated offenses. I was acquitted on all occasions. I took the PF Government to court on 5 occasions and l won 3 of the cases. In each case, l represented myself and l was up against the entire Attorney General’s chambers. So we are not new to the business of providing checks and balances to a Government, regardless of whether such a Government is tolerant or not. On the allegations that l am seeking a job from the new Government, l wish to make it clear that l have no interest in being a part of the UPND Government. For 17 years, l have been working for my own company since the age of 24. I am now 41 years old. President Hichilema has been to my office before, and he is fully aware that l am not a pauper. However, as a patriotic citizen, l will remain available to offer my advice to the President and his Government whether in person or through the media. To President Hichilema’s zealots such as Mr Benard Hamanyuma, my message to you is that by advising the President we are actually showing him our love and not hate. Therefore, there is no need of issuing death threats against us. Let us together build a better Zambia for ourselves and our children. /// END SET 31.08.2021

Sean Tembo