Alexander Nkosi pokes holes in HH’s economic plan, exposes its weaknesses

Analyst, Alexander Nkosi has brought United Party for National Development leader Hakainde Hichilema’s economic ‘blue print’ up for debate, with some now doubting its feasibility in turning the country’s fortunes for the better.

HH challenged those doubting his plan and its ability to pay bursaries to all students, totaling 147,000.

In his proposition HH said the lenders to Zambia have indicated that they are willing to reschedule such that of up to 20% of current debt repayments will be released for national expenditure.

According to him, what this meant was that immediately this happens, the country’s annual debt repayments will reduce to about US$1.76 billion, saving us as much as US$$440 million.

He went on to say, since the country wants bursaries at K1,980 per month per student, and an academic year is 9 months, this means that for 147,000 students we will need 147,000×1,980×9 which is K2,619,540,000 (K2.62bn).

This K2.62bn is US$116 million at the current exchange rate of about K22.50. With our savings of US$440 million we can afford this.

However, Nkosi challenged HH to the turf, pointing out the flaws in his economic plan and exposing its shortcomings.

Response by Alexander Nkosi

Dear Mr. Hakainde Hichilema Thank you very much for responding to my questions. I see this as Zambians discussing so as to find feasible solutions to some of our economic challenges, dialogue is very healthy. I have gone through your response. Here is my response:

1) IMF and lenders are non partisan. They are interested in leadership that reflects through policies put forward to address the challenges. They do not want policies that will put us on same path that led to these challenges. When you ask to restructure, they want to see us avoiding things like – subsidies, free education, free healthcare, mass recruitment into civil service and huge payrise – because these basically add to our pressure. They would want us to spend within our means and not start providing free things when we are begging to have our debt restructured. So even before you get your proposal accepted, you will be required to make these commitments. So here is where we differ in expert opinion: your assumption is that they will agree to restructure debt which will release 20% of what is spent on debt service and my argument is that them agreeing to your debt restructuring proposal will depend on your fiscal management strategy and if they see all these free things you are promising at a time you are begging for restructuring you will not get your wish and you won’t have that 20%.

2) The second point is that no lender has indicated anything to you, it is the government of Zambia through the contracted firm that communicates to these lenders. No individual can go behind and discuss anything with them on behalf of the Republic of Zambia. Those who understand how these negotiations are managed will agree with me. It is actually a complex process, and with bonds sometimes it involves thousands of individual investors. Even professional and reputable firms like the one we hired do not have it the easier way. So yes you are a reputable businessman and politician in Zambia but this is a different thing altogether. So you have not talked to any lenders but my assumption is that the 20% debt relief you have mentioned is what you would propose if you formed government.

3) Like I explained earlier, for you to promise free education you need to have all the key statistics, you need to know the actual total number of students and the cost of providing free education. Let’s work with actual numbers unlike giving examples, it gives an impression you do not know the number of students and estimated total cost of providing free education.

Even if I’m to work with the 147,000 you have given, your calculations are not correct. In your previous article the 147,000 is the total number of students completing grade 12 and moving to tertiary institutions every year. This does not represent the total number of students, it is just an intake. If we assume an average of 5 years per course, then each year would have 147,000 multiplied by 5, giving us 735,000 learners. Your assumption is that K1,980 would be enough for monthly stipend (bursary). Hence the correct figure is K13 billion which is $595 million.

Note that this is just meal allowance. When you add the school fees which include quality tuition, medical cover and accommodation estimated at K30,000 per year per student, it goes to K22 billion, giving us a total of K35 billion ($1.6 billion). Note that this is just tertiary, we have to include the cost of free education from grade 1 to 12 as well which is equally huge. Education is not all about tuition fees and meal allowances, we also have to increase the number of facilities; more student hostels, lecturer rooms and equipping them adequately. The total cost goes way beyond K50 billion.

3) Your Revenue: The other thing is that it is not correct to assume that restructuring will give us more money. If we follow your policies where you are promising to significantly cut down on borrowing this means the reduction in borrowing will actually be higher than the amount relased from restructured debt. You further promise to significantly lower taxes. It takes time for the reduction in taxes to translate into improved economic activities and more revenue. So the immediate effect will be a reduction in revenue. Broadening the tax base also has a double effect of giving some relief to certain players and bringing on board others, so there is a process of adjustment and its final outcome is difficult to predict in actual numbers. Improve compliance is a process. This all points to the fact that you will be faced with reduced revenue so the reality is that you will have less to spend despite restructuring.

4) Your Expenditure: Free education is not the only free thing you have promised. You promised free quality healthcare, mass recruitment into civil service, huge payrise, clear over K30 billion domestic arrears, clear arrears for council workers, stipends for headmen and many other things, and you are promising all these in the short term. How do you reconcile this with your reduced revenue?

Thank you and stay blessed.

Meanwhile, following Nkosi’s submission, many people have since been drawn into debate, a move which would require HH to come on board once again to explain and defend his position.