by Pamela Nakamba-Kabaso and Caesar Cheelo
For many Zambians today, an IMF-aid deal must feel like being forced to live and share quarters unwillingly with a foe. Those who are old enough to recall the Structural Adjustment Programmes (SAPs) of the 1980s and 1990s often recount how the stringent conditionalities of the IMF and the World Bank brought untold hardships and misery to Zambia.
Much to their dismay, late in 2016, the Minister of Finance announced that the Government had designed a Home-grown economic recovery programme, Zambia Plus, which will be complemented by external support from Cooperating partners, including the IMF. Then, recent indications were that an IMF Mission would be back in town this month (March). This has raised rumors that the Mission aims to seal an IMF deal with the Government. These prospects of an IMF deal, seen in some quarters as sleeping with the enemy yet again have caused night-sweats and anxiety for many.
Well, whether we love or hate the idea of economic recovery or the prospects of sleeping with the IMF, here are three quick reasons why an IMF-supported economic recovery programme is absolutely essential for Zambia:
Firstly, the Zambian economy is still in a precarious position more than most people realize. For a small, open economy that is Zambia, a decline in real Gross Domestic Product growth from a long-term average of about 7 percent to 2.9 percent (in 2015) is dangerously close to a recession if not a full-blown recession. After all a recession is simply a significant reduction in economic activity across the economy lasting for more than a few months, evidenced by real Gross Domestic Product or other measures of economic activity. The preliminary GDP outturn for 2016, though an improvement, is also still very low. Moreover, Zambia’s persistent and deep budget deficits have eventually led to overall Government debt levels that are now feared to be well above the sustainable threshold. Because of this, in 2017 the Government has allocated about K15 billion, almost a quarter (¼) of the national budget to debt servicing and arrears payments. These monies could have gone to tackling poverty or supporting economic growth. Without a credible Zambia Plus, these issues will continue to haunt our present generation and the next.
Secondly, IMF funds would go a long way in alleviating Zambia’s external payments position and therefore allow for room for Government to focus on structural and domestic issues that can unlock growth, create jobs and reduce poverty. Under an IMF-supported programme, the country will be eligible to an interest-free loan of up to US$1.3 billion. This would be enough to cover all of Zambia’s external debt service obligations for 2017 and 2018, offering fiscal space to the Government to dedicate the freed domestic resources to social protection, key infrastructure and growth interventions. Without an externally supported programme, Zambia will fail to finance the full breadth of its medium-term development agenda.
Thirdly, the consequences of inaction on Zambia Plus and the IMF deal would be far worse than the reality of acknowledging and addressing economic recovery with support from an IMF-aid package. Analysis of the implementation of the 2015 Budget reveals that when the economic downturn set in, the most significant underspends or budget cuts were on social cash transfers, the economic empowerment fund and the public service pension fund. We essentially failed to protect the poor and vulnerable during the 2015 downturn. So, the absence of Zambia Plus will do bigger and longer lasting damage to the lives of poor Zambians than will the few challenges of the programme.
Of course Zambia Plus is likely to have some downside challenges and risks. The Government will need to do many things to address these downside risks. Here are the two that we think are crucial:
Firstly, the Government must publicize and popularize Zambia Plus, urgently finalizing the programme document and sharing it with the public to build awareness and citizen ownership. It must ensure that the programme incorporates in-built mechanisms for eliciting social and political will. The public and politicians should be dissuaded from exerting undue pressure or unfounded fears over the establishment of Zambia Plus and IMF support, and over the realization of economic recovery.
Then the Government must ensure that Zambia Plus is underpinned by a new and more stringent set of fiscal rules that reduce the risks of financial mismanagement. The fiscal slippages that Zambia experienced in 2011-2016 should not be allowed to happen again. As we hold fast to Zambia Plus and strive to implement a credible programme, the Government will do well to establish binding fiscal rules that legally holds the Minister of Finance or his Ministry to some form of numerical limits under the scrutiny of Parliament.