The PF government is reported to have instructed commercial banks to withdraw the remaining Eurobond funds from Zambia Railways and Zesco to fund the 200 per cent salary increment promised to civil servants.
Bank sources have revealed that the government has instructed the withdrawal of the US$120 million and US$255million, from Zambia railways and Zesco respectively, to cover the anticipated shortfall.
In July and August, the Chinese government is said to have paid the salaries in Zambia.
The sources said after exhausting all avenues, the government has decided to withdraw the monies from the commercial banks and channel it to the September salary hike it promised civil servants.
They said apart from the US$750million Eurobond debt, the government was looking for a US$200 million extra fund in an effort to raise money for the salaries.
The projects the monies were intended for would have to wait until government sorts out all it financial problems.
The government is reported to have issued bonds on the local markets to raise money to fund salaries for the civil servants.
The cash-strapped PF government postponed the salary increments to this month end after a greater part of its revenue was spent on political manoeuvrings in form of bye-elections.
But former finance minister Ng’andu Magande has said that the governments move will increase the cost of borrowing and starve local entrepreneurs of capital.
“If you borrow on the local market, the banks won’t have liquidity because governments take long to pay up for the bonds. This means that if an entrepreneur wants money, the bank will lend it at a higher cost as the bank will need to settle its running costs from the little money remaining after government’s borrowing,” Magande said.
Government sources told the Daily Nation that the government had been prompted to sell the bonds after noticing that it had no money to pay the civil servants.
The only way government could pay salaries was by borrowing money from the commercial banks by using bonds.
“We can confirm that the government has embarked on a mission to raise money for salaries for the civil service. Some commercial banks have been talked to already about the issuance of these government bonds.
“This promise has now forced government to sell government bonds in an effort to have money for the new salaries. The PF government will miss the deadline to pay the Eurobond and this is not health for the nation. They have decided to divert monies that were meant for projects saying that those projects were for long term,” they said.
The minister had earlier announced that there was an over run in the budget and that civil servants would only be paid their 200 per cent salary increment in October but in order to avoid pressure from the citizens it u-turned and promised that all civil servants would get their increased wages this month end after serious consultations.
In the early 1990s, the MMD government in which President Sata served in engaged in reckless borrowing and the economy was only saved a debt cancellation campaign led by the deceased Cardinal Medardo Mazombwe.