President Lungu is not cost conscious and worsening budget deficit!

                                             By Kalima Nkonde

In most of my previous writings, I have always maintained that wasteful government expenditure, big government and excessive borrowing are the top economic challenges we face as a country and these do have negative multiplier effects on other areas of the economy including the kwacha depreciation, interest rates, inflation as well as the need for further borrowing etc but my advice like that of many others have fallen on deaf ears as demonstrated by the State of the Nation address which did not mention immediate cost saving measures to reduce the budget deficit as the President had promised prior to the speech!

I have now been vindicated by Moody’s down grade of Zambia’s credit rating to B2, which is five steps below investment grade, citing the same reasons as well as the continued depreciation of the kwacha after the market saw that government is not biting the bullet with expenditure reduction measures! According to Moody’s : “The key driver for the downgrade is our expectation that the trend of persistent fiscal deficits and deterioration in debt metrics witnessed over the past few years is likely to continue,” Moody’s analyst Matt Robinson wrote in an e-mailed report on 26th September,2016. Moody’s also sees higher debt servicing costs due to the depreciation of the kwacha and I alluded to this in my last article with regard to the growth of our debt in kwacha terms by K20billion in the last two months just by virtue of the exchange loss.

I have observed the President’s approach to government expenditure and he has demonstrated that he is not cost conscious and I will outline a dozen (12) instances in the last eight months of his Presidency where he has shown that he is not a prudent economic manager by his poor judgment on spending decisions and intensions.

The first and latest instance, which prompted my article apart from the downgrade, is his decision to travel to the United Nations by a Chartered aircraft. This is a very expensive way to travel because apart from the face value charge which is rumored to be at $300,000 (K3million), the final cost will be much higher. There are many additional variable costs that are involved in an ACMI (Aircraft, Crew, Maintenance and Insurance) contract like the one the government entered into; called a wet lease in the aviation industry. The extra costs include the following: landing fees, fuel, and navigation fees, parking fees and the crew’s hotel and accommodation, which the Government will have to pay. As NGOCC chairperson Sara Longwe observed in the Sunday Post of 27 September, 2015, the President needs to explain to Zambians why he could not board ordinary planes as past heads of state did, when he is fully aware that the nation is facing unprecedented economic challenges that need urgent redress. She added,   “He (President Lungu) is so extravagant; he should be using ordinary planes like other people do because we are a poor nation.” The late President Sata travelled by commercial aircraft and was cost conscious on this account. The defence of the Charter put up by Minister of information Honorable Chishimba Kabwili of security is laughable and an embarrassing to say the least.

Secondly, in his state of the nation address, the President announced the creation of more five ministries which even if it may be justified, it was being done at the wrong time as we are supposed to be saving more and not spending more given our budget deficit situation. The timing of creation of ministries is simply wrong and does not make economic sense! The plausible reason is to create jobs and political!

Thirdly, he announced the building from scratch Universities in my province Luapula, and Western Province in the State of Union address. These are projects that can wait! There are not a matter of life and death. What is the hurry when we are short of funds? It is clear all these are motivated by 2016 elections!

Fourthly, Civil servants have been promised pay increases next year despite the fact that the civil service bill makes up about 52% of our budget and as far as I am concerned, if one takes into account their productivity, and the quality of service they offer, they are already over paid and increasing their salaries is just preventing more young people to be employed in the civil service.

Fifthly, the President created two additional districts – Mushindano, Kalumbila – in North Western province even after initially saying he wouldn’t do it due to budget constraints among other reasons. This is also clearly targeted at getting more votes in 2016 from North Western province.

Sixth, the President does not say no to any foreign invitations and these trips can be very expensive and one needs to be selective as to which ones to undertake given our fiscal situation.

Seventh, the decision to precede with the establishment of the national airline after 21 years, despite objections by IMF, World Bank, many knowledgeable commentators including this writer that it will be a waste of money and should not be a priority in our circumstances. It is a luxury we can ill afford at the moment as we have enough problems and we should not add another one in form of a national airline. There is a possibility that the Government will partner with foreigners who will dupe them by borrowing on Government behalf and ask Government to provide the sovereign guarantee and they will naively accept the deal as it will look attractive because they will spending nothing immediately! Government should ask the Tanzanian Government who did the same and their partners bolted and left them with a massive debt. In addition , there is overwhelming evidence showing that other national airlines in countries like Tanzania, Zimbabwe, Botswana, Namibia and South Africa etc are all loss making and a drain on the treasury and they are just stuck with them otherwise they would have gotten rid of them.

Eighth, whenever there is a bye election, sometimes over five ministers, the President, the Vice President go and camp in a constituency to campaign for one MP and the costs involved in terms of accommodation, per diem, fuel, service of cars, “incentives” for voters like the K100s some of my relations in Bangweulu constituency told me they had received all amount to a lot of money wasted.

Ninth, President Lungu’s delegations for local and foreign travels are huge and these come with costs in hotels, per diem, allowances etc. The trip to New York is a case in point where even musicians were on the trip! It is quite possible that the motivation to Charter was to enable them carry more people and musicians musical instruments for the PF fund raising event, “ meet the President dinner” in New York. Who knows, may be there was a concert airborne en-route to New York!

Tenth, the Presidential motorcade is much larger than I have observed abroad in other countries which are even richer than us and these things do cost a lot of money and contribute to the budget deficit.

Eleventh, the government under president Lungu has continued purchasing expensive cars for officers including the new appointed District Commissioners at great cost. The cars purchased are more expensive than the Fiat that Pope Francis has been riding in while in the USA and the Vatican is richer than Zambia!

Lastly, his cabinet’s decision to build a Mausoleum for President Sata at the Presidential burial site is a clear demonstration of a government whose priorities are totally wrong. The current tombstone in my view is expensive enough and one wonders what added value such an expense will add!

There is no doubt that even if Zambia was to discover oil, diamonds, gold, platinum or any other valuable minerals or we were to be given $100 billion dollar loan, the money will still be wasted as our leaders’ insatiable appetite to spend is beyond belief. Our problem is not really revenue but wasteful expenditure. The financial indiscipline is all over the place. Most of the spending decisions are not motivated by economic imperatives but by political and short term gratifications. The budget deficit can only be addressed if the mind set is changed and this has to start from the top and unfortunately, President Lungu has shown beyond any reasonable doubt, in his last eight months in office, that he is not frugal and not financially prudent and not a good economic manager.

One also wonders where the finance Minister is, this entire spending binge! The Finance minister, Mr. Alexander Chikwanda is equally culpable and accountable for the budget deficit and the economic mess! Our economy is almost back to the UNIP days when Mr. Alexander Chikwanda and his ilk presided on a failed economy and accumulated massive debt of over $7billion and it appears history is repeating itself! In most countries, Mr. Chikwanda would have resigned if indeed he is a professional finance manager given that some of the decisions that he made which he thought would improve economy such as SI55 , mining royalty tax and others were reversed over his head after vowing they would not be reverse! As things stand, and since he has not resigned, he may end with the unenviable tag as the worst finance minister in Zambia’s history having been at the helm of the finance ministry twice in 42 years and presided over the economic collapse of the country during both tenures! He needs to step up the plate and put his head on the block and stem the haemorrahaging of the economy by putting in place austerity measures otherwise history will not be kind to him.

In his state of the nation address, the President asked the nation for solutions to the economic problems that we are facing and one of my solutions is for the government to cut its expenditure. The President should change his mindset and that of his team from being wasteful to being cost conscious and to start cutting government expenditure. He should lead by example like President Buhari of Nigeria and Pope Francis of the Vatican both of whom are richer countries than Zambia. He should match his reported humility with modesty in expenditure; otherwise the reported humility will be interpreted as a smokescreen, a mirage and fake! We simply do not have the money! Let us prioritise our expenditure and live within our means. Our leaders should adjust like hard working but struggling Zambian families are doing!

 

The writer is a Chartered Accountant by profession and a financial management expert. He is an independent and non partisan commentator.

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