The United Liberal Party (ULP) has advised government the Debt Management Office (DMO) to draw up guidelines that will limit the growth of future domestic debt in Zambia.
ULP president Sakwiba Sikota says government should ensure that the debt service ratio does not exceed 40 percent of allocation from the national account.
He said in a press statement that effective mechanisms should also be put in place to ensure that any new borrowing is judiciously utilized to contribute to economic growth.
“The United Liberal Party (ULP) believes that it will be healthy for the economy if the government strives to finance some budget deficits by improving on the present revenue base rather than resorting to domestic borrowing. This can be achieved by increasing government revenue sources and efficient pursuit of tax reforms to include a large section of the informal sector.
“Several factors have been advanced towards explaining the rising domestic debt profile. Some of those factors are high budget deficit, low output level, increased government expenditure, high inflation rate and narrow revenue base. ULP findings suggest that the increasing domestic debt profile if not controlled has the potential to affect the growth of the economy negatively,” Said Sikota.
The ULP leader said that investigations on the effects of rising domestic debt on the Zambian Economy by economic experts have revealed that there are three factors that increase government domestic debt.
“The first is budget deficit financing the second is implementing monetary policy (buying and selling of treasury bills in the open market) and the third is developing the financial sector (supplying tradable financial instruments so as to deepen the financial market),” he said.
He said efforts should be made by the government to settle the outstanding domestic debt.
“This will give room for proper conduct of monetary policy in the economy. Commitment to the budget should also be encouraged for fiscal discipline on the part of the government and it’s implementing agencies.”