DR CALEB Fundanga says it is “worrisome” that the government has continued to spend huge sums of money on projects through external borrowing.
And Dr Fundanga says Zambia’s imminent IMF economic programme should serve as a lesson for the country to build up sufficient reserves so that the economy could withstand external shocks.
The former Bank of Zambia governor said Zambia’s biggest problem was the government’s high expenditure which did not match the country’s revenue generation.
“One thing I can tell you is that the biggest problem we have had here is that government revenues have not matched the expenditure so we have been spending more. I know we have had big infrastructure projects, these trips and so forth…all these things have contributed to the [fiscal] deficit; it is quite high, so it is that hole which has to be plugged,” Dr Fundanga, who is now executive director of Harare-based Macroeconomic and Financial
Management Institute of Eastern and Southern Africa (MEFMI), said in an interview at the ongoing 51st AfDB annual meetings in Lusaka.
“Of course, when you don’t have income, you reduce on your expenditure; you can’t go on spending money which you don’t have. But you have seen over the four years, the government has borrowed a lot of money through the issuance of Eurobonds to finance some of these huge projects, thus leading to a situation where our level of indebtedness has increased very fast over a short period of time. I know people say we are still around forty something per cent of GDP, but it is the rate of increase in a very short period of time which is often worrisome.”
He also said following Zambia’s acceptance to get onto an IMF economic programme, there was need for the government to save and build sufficient foreign currency reserves that would in future act as a buffer against external shocks.
Last week, BoZ governor Dr Denny Kalyalya confirmed that an IMF team was in the country this month to undertake a financial sector assessment programme.
This followed an acceptance by the Zambian government to implement an IMF economic programme to supervise the 2017 national budget.
The programme is meant to help bridge the gap on the shortfall in Zambia’s balance of payments that has come under immense pressure following a slump in copper prices on the international market.
“In our case, our advice which we give is that countries should be building up some reserves of whatever nature. Even if they are not a lot, but you should save for a rainy day, and if you develop the habit of saving, a rainy day may not be very rainy because you have a raincoat on you,” Dr Fundanga (right) said.
And Dr Fundanga said the country should ramp up activity in the productive sectors to ensure Zambia is in a stronger position to pay back its debt obligations.
According to a Moody’s economic outlook issued on Monday, Zambia’s current account deficit deteriorated to an estimated 2.6 per cent of GDP in 2015, from 1.3 per cent in 2013 and a surplus in previous years, primarily due to declining copper prices.
Moody’s data further reveals that Zambia is second highest behind Gabon in terms of the total public debt having significantly increased due to the three Eurobond issuances.