Analysis of the 2022 budget and borrowing
The 2022 budget stands out as the best budget the country has ever had, at least in my life time. It is a surplus budget yet proposing to achieve a lot .The budget does not propose to borrow any money, rather it is proposing to repay about USD388M towards the about USD27bn the government owes. The budget proposes to borrow about USD4.2b and at the same time proposing to repay towards the USD27bn to a tune of USD388m. In short all that the government will borrow in 2022 will go towards the USD27bn that we already owe. In accounting there is what we call substance over form. This means that the substance of a transaction is more important than the form of a transaction. In this case the substance of the loan activities proposed in the 2022 budget is that the government will refinance part of the USD27bn that will fall due in 2022 by replacing that component with new loans. The list of creditors will be reconstituted, some names of old lenders will leave the lenders list and be replaced by new names. On net basis, this budget is proposing to generate more money than it is proposing to spend by about USD388m (ZMW6.6bn). The Minister explained that actually the purported borrowing proposed in the budget amounting to about USD4.2bn includes USD1.3bn, a donation we received from IMF in form of Special Drawing Rights. If we remove this from borrowing, the budget surplus is actually is about USD1.7bn in the 20222 budget.
Many people have attempted to compare the USD4.2bn debt acquisition proposed in the 2022 budget to the about USD25bn debt acquired in the last ten years. Apples must be compared with apples! The USD25bn ( 27bn-2bn that existed in September 2011) that we accumulated in ten years is net of debt repayment in the same period. Supposing that we have been on average paying of USD4bn annually towards debt service in the last ten years, it implies that the total debt we borrowed in the past ten years is USD65bn. However, it is of no value to look at the USD 65bn since it has no potential to harm us, it is irrelevant. It is in the same vein that the debt activities of the 2022 should be evaluated on net basis and on this basis, the borrowing in the 2022 is actually negative USD388m (Loan repayment of USD388m). The budget is perfect with regards to borrowing as it is proposing to service debt than it intends to acquire debt. I don’t know why some members of the public are excited that the new budget is proposing to borrow about USD4.2bn in one year when in the last ten years, we only have been borrowing about USD2.5bn per year. If the above statement on USD4.2bn and USD2.5bn represented the correct borrowing position of the government, I would not see any reason why investors and donors would continue to respect and trust us. We shouldn’t be telling the world that we are borrowing USD4.2bn when in fact we are borrowing negative USD388m in the 2022 budget.
However, I think that considering that our debt is about 140% of GDP, it is unsuitable and to this effect, we have in the past defaulted on loan repayment, the minister should have informed the public in his budget presentation what measures the government has put in place to dismantle the USD27bn. While the numbers say that USD388m will be paid towards the USD27bn in 2022, nothing has been said about the remaining USD26.6bn. And note the outstanding debt at the end of 2022 will only remain USD26.6bn if the whole amount allocated towards loan repayment is paid in 2022 and the government does not borrow more services and goods in addition to those budgeted for in the 2022 budget. While I know that the government is intending to restructure the loans, such that the tenures are increased which will result into lower annual instalment, though higher borrowing cost, such that if one loan has a tenure of ten years, its tenure will be increased to twenty years . This means that if the annual repayment on the loan when the tenure is ten years is USD100m, the annual repayment when the tenure of the loan is revised to twenty years, the annual repayment may end up to be USD50m, releasing some money towards other needy areas. If the average life of the total debt is 15 years and you extend that to 30 years, the annual repayment will be lower and when the principal is due in 30 years, the economy will have grown and it will easily be able to pay the principal amounts without any problems. It is important that the government communicates the plans it has with regards to debt management to the public, lenders and donors to stop speculation which is not good for the economy.
All in all, while there is no budget that can accommodate the aspirations of all the citizens of a country, this budget is the best that I have ever seen. Excluding financing activities, it is a first surplus budget in so many years.
Compiled by Naylor Kopakopa
The Author is a Financial Analyst and Chartered Accountant