2019 will be a year of economic misery – former Finance Minister

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2019 will be a year of economic misery, former Minister of Finance Situmbeko Musokotwane has charged.

In his New Year as opposition UPND  Chairperson for Economics, Situmbeko predicted a difficult year for Zambia under the PF government.

Dr Musokotwane served as Minister of Finance under Rupiah Banda’s MMD. He is currently a member of Parliament for Liuwa in Western province.

Below is his message which has been availed to Zambian Eye:

UNITED PARTY FOR NATIONAL DEVELOPMENT (UPND)
New Year Message
*By Situmbeko Musokotwane*

*Chairman of the Economics and Finance Committee*

Greetings from the entire UPND and indeed from the party’s economic team.

While we wish all citizens a happy new year, we doubt that 2019 will be a year of economic prosperity. To the contrary, it is likely to be a year of economic misery.

The government is painting a rosy economic picture for 2019. This is extremely misleading for the average Zambian. The UPND is not alone in being skeptical about a prosperous 2019. The international media is awash with reports and analysis about the impending economic crisis in Zambia largely due to the country’s excessive national debt. Strangely, it is only in Zambia where there is no active discussion about this crisis.

The rosy picture from the government is based on their projection for strong economic growth in 2019. For now, let’s start off by assuming that the growth will indeed materialize. We shall return to this issue later.

The links between strong economic growth and prosperity are well known. Strong growth generally results in more employment opportunities because expanding enterprises tend to employ more labor. Strong economic growth increases business opportunities because enterprises increase their purchases from each other as they expand production. Strong economic growth also tends to increase tax revenue collections by the government even without increasing tax rates. This comes about because new employees cited above become tax payers. Also increased volume of transactions as the economy expands generates more tax revenue. With more tax revenue, a responsible government can spend more on public goods like education, health and infrastructure.

It does not follow however that higher economic growth will always lead to general prosperity. It all depends on other factors. It is like in a family. The mere fact that the bread winner gets a salary increasement does not mean that the family will automatically prosper. It may be that the bread winner is irresponsible and will waste themoney. It may be that the family has over borrowed, meaning that the increment in salary will be swallowed up by rising debt service. Other similar factors may be identified.

Similarly, at the national level, higher economic growth may not lead to general prosperity. The high growth rate the PF government boasts about is unlikely to benefit the majority of the citizens. This is largely due to the debt
crisis that the PF government has brought about. Here are examples of how the debt crisis will undo the potentially positive impact of economic growth.

Firstly, most businesses big and small have already noticed that selling products and services has become harder
– “there is no money in the economy” -, as the saying goes. Indeed, there is little money in the country and the reason is that a lot of it is being sent outside the country to service (external) debt. This means there is less money remaining within Zambia to be spent here. This problem is likely to continue with intensity in 2019 and beyond.
Secondly, it is highly unlikely that public workers will receive meaningful salary increments in the foreseeable future. From 2015 the prices of goods and services such as fuel, transport, food and electricity have gone upsignificantly. While this happened, public workers won only paltry salary increments that failed to compensate them for the risen cost of living. They are unlikely to win meaningful salary increments in the next few years.
Again we must blame debt servicing for gobbling up most of the money at the expense of public workers.

Thirdly, 2019 can hardly be expected to be a prosperous year because of the very high risk of the Kwacha losing value against other currencies or what is called an exchange rate depreciation. This risk is very real. The likely cause once again is the high debt burden facing the country.

Since 2014, Zambia has consistently been losing foreign exchange reserves – dollars and other foreign currencies which the Bank of Zambia uses to stabilize the exchange rate. Presently, the key driver for the loss of reserves is external debt servicing. In this regard, 2019 is a bad year for the foreign exchange market because the government budget indicated that debt service will require about $1.5 billion. This is likely to cause destabilizing effects on the exchange rate market given the fact that the national reserves are only $1.6 billion. In January 2016, reserves were at nearly $3 billion. So, within this short space of time, reserves have fallen by nearly half and this trend is likely to continue. This is a serious national crisis that is looming.
An exchange rate depreciation of course results in further rises in the cost of living while wages and salaries are for the most part likely to remain stagnant. Under such circumstances, the cost of living will get even much higher than now. How then can 2019 be a year of prosperity?

Finally, let’s return to the issue of the projected strong economic growth in 2019, which is the government’s basis for expecting prosperity during the year. The target growth rate in the 2019 budget was four percent.

In the Budget Speech, the following was said to be the contribution of mining to economic growth in 2019:

“The mining sector will also continue to be important through its linkages with other sectors and the generation of foreign exchange”

Unfortunately, the envisaged role of the mining sector in the expected 2019 economic growth has turned out to be the opposite of what was desired. As things stand, the mining sector will actually subtract from the overall economic performance of the country. Arising from the disagreements over new mine taxes which the government introduced in the 2019 Budget, some mining operations have been closed. New investments have been suspended and labour force has been reduced. The mining sector is in turmoil.

Once again, the debt national problem is contributing to this problem. Our government is desperate for cash as it realises that it is unable to deliver services adequately and still pay off its debts. So, it finds itself forced to impose all sorts of taxes and levies to raise some cash. In the fury of doing so, the government has even overlooked the fact that the cow that brings milk must not be overtaxed to the point where its productivity is rendered negative.

Contrary to the expectations of the government, these negative developments in mining will weigh towards reducing the 2019 GDP. Consequently, it is legitimate to ask how prosperity can arise in the country when some
mining operations are closing; when some miners have lost jobs and incomes and when farmers and traders in mining towns are losing business because the miners who used to buy from them now have no money to buy.

In conclusion, the government’s promise that 2019 will be a year of economic prosperity is not supported by objective facts and should therefore not be taken seriously. To the contrary, the people of Zambia should brace themselves for economic hardships. This is only logical given the fact that Zambia has once again been pushed into a debt crisis. The PF government is in the first instance well advised to admit that the country is facing a debt crisis which will soon be worse that the one of pre HIPC. In the same vein, it is necessary for them to clearly articulate how they intend to tackle this looming crisis.
The debt crisis is presently one of Zambia’s biggest and most urgent economic problems. Unfortunately, our government is choosing to pretend there is no crisis. This will not help because the first step to solving a problem
is to acknowledge its existence. To this date there is no sign of any serious effort to address the national debtproblem. Surprisingly, some ministries are even thinking of huge new additional borrowings.

UPND will take a different route once in government. After auditing all debts for authenticity, the plans that have been carefully designed during the past two years will be implemented so that the debt crisis is resolved swiftly.

This will unlock the financial resources that are so desperately needed to hire teachers, medical staff, support free education up to college tertiary level, support farmers, reintroduce liquidity in the economy and address many other genuine public concerns.

Musokotwane

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