PF to increase limit on domestic borrowing

The government will next week ask parliament to increase its limit to borrow money domestically. Solwezi MP lucky Mulusa looks at what this means in reality.

EFFECTS OF FISCAL INDISCIPLINE – PF GOVERNMENT SHOULD RESIGN!

Lucky Mulusa

This is the motion that shows the effects of the fiscal irresponsibility of the PF government. The statements that follow the sub-titles called, “What it means”, are my own additions,

What has necessitated this motion is the impact of massive unplanned for and misplaced recurrent and capital expenditure prioritising that has caused the economy to fail to achieve synergies that come from productive economic capacity created by well sequenced project implementation.

The economy is facing massive funding pressures thus the need to have a total borrowing limit which is almost twice the current budget and up to 70% of the GDP. Zambia does not have the investment grade rating to sustainably attract investors to sustain the borrowing appetite being exhibited by the PF government.

This is the motion as debated to day and to be concluded next week. The arrogance of numbers will again be at play and Zambia’s future will be mortgaged: 

NOTICE OF MOTION

The Minister of Finance

Increase Amount Outstanding at Any One Time on Domestic Loans: That, in terms of Sections 3 and 15 of the Loans and Guarantees (Authorisation) Act, Chapter 366 of the Laws of Zambia, this House authorises the Minister of Finance to increase by Statutory Instrument:

WHAT IT MEANS: This shows desperate measures emanating from fiscal indiscipline fueled by lack of a cohesive development agenda that can be managed with milestones and logical steps followed in project management. We are doomed!

(i) the maximum amount outstanding at any one time on domestic loans raised within the Republic and payable over a period of not more than one year from two hundred million kwacha (K200,000,000) to thirteen billion kwacha (K13,000,000,000);

WHAT IT MEANS: This means increasing this particular borrowing category by 6,400%

OLD LIMIT  NEW LIMIT

PERCENTAGE INCREAMENT

   200,000,000.00    13,000,000,000.00             6400%

This is out of any corresponding increment in any parameter of a fiscal or monetary nature that could have motivated this action!

(ii) the maximum amount outstanding at any one time on domestic loans raised within the Republic and payable over a period of more than one year from ten million kwacha (K10,000,000) to twenty billion kwacha (K20,000,000,000);

WHAT IT MEANS: This means increasing this particular borrowing category by 199,900%

OLD LIMIT  NEW LIMIT

PERCENTAGE INCREAMENT

     10,000,000    20,000,000,000             199,900%

Again this is out of any corresponding increment in any parameter of a fiscal or monetary nature that could have motivated this action!

(iii) the total contingent liability at any one time in respect of guarantees given in terms of section 14 of the Loans and Guarantees (Authorisation) Act, Chapter 366 of the Laws of Zambia to persons ordinarily resident in Zambia, from two hundred million kwacha (K200,000,000) to two billion kwacha (K2,000,000,000); and

WHAT IT MEANS: This means increasing this particular contingent liability category by 900%

OLD LIMIT  NEW LIMIT

PERCENTAGE INCREAMENT

   200,000,000       2,000,000,000             900%

Again this is out of any corresponding increment in any parameter of a fiscal or monetary nature that could have motivated this action to increase this particular category of contingent liability!

(iv) the total contingent liability at any one time in respect of guarantees given in terms of section 14 of the Loans and Guarantees (Authorisation) Act, Chapter 366 of the Laws of Zambia to persons ordinarily resident outside Zambia from two billion kwacha (K2,000,000,000) to five billion kwacha (K5,000,000,000).

WHAT IT MEANS: This means increasing this particular contingent liability category by 900%

OLD LIMIT  NEW LIMIT

PERCENTAGE INCREAMENT

      2,000,000,000.00       5,000,000,000             150%

Again this is out of any corresponding increment in any parameter of a fiscal or monetary nature that could have motivated this action to increase this particular category of contingent liability!

FINAL IMPACT ON THE DEBT TO GDP RATIO

As you can see below, the lowest, ratio of 4.4% is what the MMD handed over to the PF government. The PF has taken it to above 30% in less than two and half years.

Actual

Previous

Highest

Lowest

Forecast

Dates

Unit

Frequency

31.20

38.90

277.53

4.40

30.62 | 2012/12

1990 – 2011

percent

Yearly

 

The following table shows the final change with this motion passing:

 Category  OLD LIMIT  NEW LIMIT

% INCREAMENT

 i

 Domestic short term          200,000,000       13,000,000,000

6400%

 ii

 Domestic medium/long term             10,000,000       20,000,000,000

199900%

 iii

 Guarantees to local residents          200,000,000         2,000,000,000

900%

 iv

 Guarantees to external residents       2,000,000,000         5,000,000,000

150%

 Total impact       2,410,000,000       40,000,000,000

1560%

 Foreign borrowing increment    20,000,000,000.00       35,000,000,000

75%

 Total impact domestic plus foreign    22,410,000,000.00       75,000,000,000

235%

 

2014 budget

      42,000,000,000
 2013 GDP    107,000,000,000
 UPPER LIMIT DEBT TO GDP

70%

 SADC PROTOCAL

60%

 

BORROWINGS:

Zambia’s debt to GDP ratio is currently sitting at below 40% way below the SADC protocol of 60%. While this might mean that the country is not taking advantage of availability of funding to enhance development, the uncoordinated nature in which development is being undertaken pose challenges of borrowed funds failing to grow the reproductive capacity of the economy to underwrite repayments and therefore avoid refinancing risks.

Explicit and implicit government guarantees often expose governments to considerable risk—which is rarely reflected on the government’s balance sheet. The contingent nature of this risk exposes governments to the possibility of sudden and substantial obligations over a short period of time, which could lead to severe fiscal challenges. We are breaching the threshold.

The upper limit should at least be below the agreed protocol. Our rating will definitely be lowered thus increasing cost of borrowing. This is because ever increasing borrowing limit without corresponding strategy on productive usage for the funds to be borrowed is indicative of irresponsibility which should be compensated for with a higher risk premium when pricing debt instruments. This is sad!

The other implication is that the private sector borrowings will be crowded out. There will be no private sector driven economic growth and job creation. This is severe strain to our fiscal stability! The government must resign!

Share this post
Skip to toolbar