*Our advice to PF over the Special Cabinet Meeting of Monday, 27th May, 2019 on the current state of economy*
*By Hakainde Hichilema*
*UPND President and Economist*
On 28th May 2019, the Minister of Finance released a statement on the Outcome of the 11th (Special) Cabinet Meeting on the State of the Economy, Held at State House on Monday, 27th May, 2019.
We welcome the Government’s realisation that Zambia has fallen on very tough times that require urgent policy actions and strong political will. The measures being proposed in the statement are the same ones from former Finance Minister Felix Mutati’s Economic Stabilization and Growth Programme (Zambia Plus), which we even alluded to a few days ago in our advisory on fiscal consolidation. Why the Government departed from Zambia Plus in the first place remains a wonder. We can only pray that these Cabinet decisions are not too little too late given the current economic deterioration and that this time around, the Zambia Plus measures will be actioned with seriousness.
A few things are worrying regarding the text of the Statement. For one, in part, it reads: “Cabinet deliberated on the growth prospects… in 2019 and over the medium term… Cabinet noted the negative impact of climate change that has affected agriculture and electricity production and the tight liquidity conditions… [and] the impact of the trade war and uncertainty around BREXIT…”.
We strongly believe that critical self-reflection and honesty are key for solving economic problems. The Minister’s statement is however far short on both self-reflection and honesty. If climate change related agriculture and electricity production are the core problems, why did Cabinet fail to propose structural reforms such as investments in climate-smart agriculture (e.g., solar-power groundwater irrigation projects instead of urban roads projects) and energy projects (solar, biofuels, etc. projects instead of expansion of rain-dependent hydro power installations)? More so the tariff structure for independent power producers has not attracted investment in this sector, because Government has not been willing to negotiate a cost reflective tariff.
Why did Cabinet fail to acknowledge that the adverse liquidity conditions are a result of poor fiscal management, specifically the high borrowing without spending plans and the resultant poor quality of public investment, especially infrastructure spending? Why is Cabinet failing to commit to curbing the excessive infrastructure project spending with the same strictness imposed on Ministries, Provinces and Spending Agents? The claim that “projects that are of an economic nature will not be cancelled… [to spur a] resumption of growth” is a sham. Analysis shows that despite the Government’s excessive spending since 2012, Zambia’s Incremental Capital-Output Ratio has deteriorated continuously, showing increased inefficiencies or poor investment quality during the PF era. The PF Government simply needs political will to stop its obsessive and gluttonous infrastructure spending habit and to stop the high levels of corruption never seen before in the history of our country.
Bank of Zambia (BOZ) has recently analysed Zambia’s potential output and has found potential real GDP growth has fallen from 7-8% per year in 2008-2010 to about 4% per year currently, meaning that the economy can no longer grow at more than 4% per year. Also noteworthy is that the IMF has recently revised the growth rate estimate to 3.1%. The quality of spending, which focuses only on infrastructure and neglects private sector development is the main reason for this productivity and output decline. But rather than undertaking reforms to support private sector re-energization and development, PF is fixated on roads.
While we would hope that the Zambia Plus policy measures that Cabinet has reiterated will now be implemented with seriousness and commitment, we cannot help but worry about the low levels of political will in the PF administration. Austerity was repeatedly announced in 2016, 2017 and 2018, but with no serious intent to change policy behaviour. Here we are again with the Cabinet making the same old announcements.
But we are not the only ones who are worried about the PF’s lack of seriousness. Last week, International credit rating agency Moody’s downgraded Zambia’s credit rating and revised its outlook to negative. In parallel, the International Monetary Fund (IMF) issued a statement saying: “However, the latest borrowing plans provided by the authorities [Zambian] continue to compromise the country’s debt sustainability and risk undermining its macroeconomic stability and, ultimately, living standards of its people.” The IMF said this, going on record that the PF Government is undermining the living standards of its people!!! Most likely, the PF will soon say: “unpatriotic HH has told Moody’s and the IMF lies, now they are saying these bad things against the PF Government and spreading fake news”.
One true hallmark of great leadership is the ability to admit mistakes instead of always trying to find scapegoats. Another is genuinely listening to advice. In this regard, we would like to offer three pieces of advice to the PF Government again:
a) Own up to your past mistake so you can genuinely learn from them, and maybe we can then all move past them toward sincere and serious problem solving together;
b) Take our advice in good faith as it is offered in good faith; institute the well-rounded set of corrective policy and structural reform measures we have been advocating for so long now. Draw on our expertise, strategic thinking and advice; it will help this country and our people.
c) The need to stop the rampant theft of people’s resources by fighting corruption meaningfully/ significantly and not the
current symbolic/half hearted way which smacks of complicity by those in authority.
We are not doing this for political mileage but out of genuine care for this country’s citizens, now and in the future. We stand ready for the economic Indaba we proposed previously.