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Thursday, October 28, 2021

Zambia’s foreign debt hits 15 billion dollar mark

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Finance Minister Situmbeko Musokotwane has revealed that Zambia’s external public debt had grown uncontrollably over the past decade to almost $15 billion by June this year, including money owed by state companies.

Dr Musokotwane said that even without parastatal debt included, Zambia’s external debt in that month was estimated at $12.91 billion.

“National debt has grown uncontrollably since 2012. Year in, year out, the borrowing was spiralling out of control,” he said.

Dr Musokotwane also said Zambia aims to raise copper production to 3 million tonnes from its current less than a million tonnes in the coming decade.

Below is the full statement



Madam Speaker,

I thank you for according me this opportunity to provide a status report on the economy. In a sense, I am providing an inception report upon which a baseline is being established. The UPND administration will build on it and push forwards.

Going forwards as part of the reforms that the country needs to undertake, I think we should institutionalize the practice of an outgoing administration stating the status of the economy as they leave and an incoming administration also indicating what they have found. It is a practice found in some countries.

A practice of that nature requires that the data set for making the report be comprehensive and accurate. This needs to be build up with time because currently the data sets are not adequate in some critical areas. A good example is that of employment data.

Madam Speaker,

My presentation this afternoon will highlight macroeconomic situation as we found it, subject of course to data availability. I will also give some broad indications of the drive forwards on the economy by the UPND administration.

Madam Speaker,

Here is the summary: Our economy is faced with a number of challenges. Growth has been sluggish, fiscal deficits have been persistently high, debt is unsustainable, inflation is in double digits, the exchange rate has been volatile and interest rates have remained high.

The combination of these challenges has brought about sufferings among the people, hence the decision they took to change government. This administration stands by its campaign promise to reverse the sufferings and improve the lives of the people. It is impossible to move away from the promise of improving the peoples’ lives because then, it would have been purposeless to seek to govern.

Madam Speaker,

I start my remarks by saying something about the growth of the economy as measured by the changes in the GDP from year to year. This is one of the critical measures of the economy and it provides a quick view of its tempo. It is one of those measurements of the economy which is akin to that of a farmer measuring the yield in his farm in a particular year.

It is desirable that an economy must grow, all the times. In simple terms, this means that the production of goods and services must increase from one period to the next. In practical terms, farming produce must be higher than it was in the previous period.

The same must happen in other goods and services such as mining output, manufacturing, tourism visitors and so forth. It is this expansion in the production that increases the number of jobs, creates other business opportunities, generates money in the economy and increases the taxes paid so that your government can spend more to support education and other social services.

Over the decade up to 2021, the average growth in national economy has been significantly lower that the growth in the decade before. It is for this reason that on average, most citizens are poorer than they were ten years ago. Of course, some may be richer due to different explanations. But those are in a minority.

In 2020, the economy contracted by 2.8 percent, meaning the production of goods and services became smaller that the levels attained in 2019. The contraction was on account of negative growth in the Manufacturing, Wholesale and Retail Trade, Construction and Tourism sectors largely due to supply chain disruptions and a fall in demand.

Regarding the significant economic decline in 2020, two major factors were responsible for the outcome. The first was the COVID-19 pandemic. The second factor, and perhaps most serious, was the blowing up of the debt crisis. Huge payments of external debt drained money out of the economy, leading to closure of many businesses due to absence of demand.

The negative effects of Covid, both in Zambia and the rest of the world, are well understood. The effects included disruption of productive forces, disruption of trading arrangements and of course also, loss of human capital through deaths and hospitalizations as well as meeting unplanned heavy expenses for Covid.

It is noteworthy though that Covid merely added to two preexisting serious economic problems in the country. The first is the consequences of the excessive borrowing undertaken by the previous government during the last ten years they were in power. The second cause is the old age problem surrounding dependency on the key mining sector, which in itself has not been managed very well. Let me elaborate.

National debt has grown uncontrollably since 2012. Year in year out, borrowing has been spiraling out of control even when each year, there were promises made to manage the national financial resources more prudently.

The stock of Central Government external debt as at end June 2021 stood at US $12.91 billion. But, as per convention, when we add $1.57 billion of debt by parastatals that government guaranteed to the creditors, the total government external debt as at end June 2021, stood at US $14.48 billion.

Madam Speaker,

The debt that I have highlighted so far is just the external component. But there is also substantial domestic debt including arrears to suppliers that the government must deal with. This of course makes the situation worse. Very soon, I shall be returning to the House to provide a comprehensive statement on the national debt and the measures being undertaken to deal with it.

The growth of external debt from less than $2 billion in 2011 to its current levels of about US$14.5 billion reflects one of the worst economic blunders during the last ten years and it has significantly contributed to the suffering we see today: The government was unable to hire key personnel like teachers, the exchange rate depreciating, rising inflation and many more.

Let me elaborate on one of the effects of excessive borrowing, namely inflation. It refers to the ever continuing rise in consumer goods and services. You will recall Madam that for many years, inflation was below ten percent per year. However, as at end-August 2021, inflation was recorded at 24.4 percent which is too high and way above the 6-8 percent target band.

With the increased inflation, lending rates at banks also increased to an average of 25.6 percent in August 2021. Other than inflation, this was on account of elevated levels of borrowing by the Government. In the past decade, bank lending to the private sector has been stressed as most of the credit was taken up by the government. This must change.

For 2021, preliminary estimates indicate that the economy grew by 0.5 percent in the first quarter while growth registered 8.1 percent in the second quarter. Growth is projected to grow by above 2 percent for the whole year. This is on the back of a general improvement in the economy of the world.

It is also fair to add, Madam Speaker, that from mid-2021, a number of international initiatives to mitigate the effects of the Covid 19 pandemic permitted Zambia and other poor nations to suspend the servicing of some external debts. In other words, we are not servicing most of the debt as it falls due. This has allowed for more money to remain in the country and therefore was bound to improve the spending power of citizens.

Madam Speaker,

The overriding economic policy objective for 2022 and the medium term, will be to transform our economy, expand it and create employment opportunities.

However, Madam Speaker, we must simultaneously deal with the problem of the excessive national debt without which it will be impossible to normalize the economy, let alone to bring about fundamental economic transformation for job and wealth creation. Later this week, I shall return to the House to give an update of the debt situation of the country and the way forwards towards resolving it.

In the meantime, let me provide an idea on how the UPND administration will address the issues of employment, especially for the youth and economic well-being in general.

Madam Speaker,

We have an opportunity of a life time to transform the economy into one that grows strongly every year. From now onwards, the war cry will be economic growth, economic growth and economic growth. Everything we plan and talk about will be about strong expansion in production. And this House has an important role in this war to get production up every year. Our debates, our speeches, our priorities in the budget: All must focus on growth and everything that it takes to realise that dream.

It may be expansion of output in agriculture, manufacturing, tourist arrivals, goods transported; etc. And, of course, our mines must produce more since copper prices are forecast to remain very high in the next 15 years. This is why on many occasions UPND has expressed the intention to see copper production rise to three million tons in the next ten years and the money that this country will earn will be make everyone smile.

It is that expansion that will create direct jobs for the youths in the sectors concerned as well as indirect ones in the related ones. Expansion will generate more money for everyone including the owners of production, the employees and even for the government through higher tax revenues. These aspirations Madam Speaker are achievable. We have seen the same transformation take place during our own life time in countries like Mauritius, Malaysia, Thailand and even in a country like Vietnam which just decades ago was bombed to dust during its civil war.

Madam Speaker, these countries thirty to 40 years ago were poorer than Zambia. Today they have advanced so much. It is hard to believe that the I Pads we use in this Parliament are manufactured in the same Vietnam. Colleagues, we can do the same and liberate our nation from poverty and shame.

Towards the month end, I shall be coming to this House on the instruction of our president and government to present the 2022 Budget. In that budget the first steps in this ambitious transformative journey will start. Those will be the first steps. But they will be the defining steps of a journey of no return to poverty, but one to prosperity for all.

Madam Speaker I thank you.

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