Transcript JCTR-Presentation-On-The-Debt

ZAMBIA’S RISING DEBT SHOULD WE WORRY?
Musonda Kabinga
Jesuit Centre For Theological Reflection (JCTR)
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Presentation Outline
Who we are - JCTR
 External and Domestic Debt
 Govt’s Rationale for Borrowing
 Increased Debt Levels: a Source of Worry or Not?
 JCTR’ s position on Debt
 Conclusion

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Who We Are
JCTR
a faith based CSO organization involved in research,
education, advocacy & consultancy on issues of social justice
JCTR
with other organizations involved in advocating for debt
cancellation
Hosted
Jubilee debt cancellation campaign
Zambia’s
external debt cancelled under the HIPC and MDR
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Who we are – Organizational Structure
JCTR
Social &
Economic
Development
Faith & Justice
Outreach
Livingst
one
Monze
Mongu
Kabwe
Ndola
Kasama
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Trend in External Debt Increase
YEAR
2006
2007
US
Millions
2008
2009
2010
2011
2012
2013
US Billions
Total Govt External Debt
971.77
1.1
1.18
1.5
1.7
1.9
2.2
3.2
Total External Public debt
as % of GDP
11.2
9.20
10.55
11.14
10.93
10.73
11.6
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Source: Ministry of Finance
Prior
to the debt cancellation period under HIPC, external debt
stock was around US 7 billion dollars
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Trend in Domestic Debt Increase
Domestic Debt Stock in K’billion rebased
Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
Domestic
Stock
6.1
7.7
8.2
8.4
10.3
10.8
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15.12
19.7
Domestic
Debt as a
% of GDP
19.32 20.02
17.92
15.49
16.00
13.99
14.93
*
16.3
Source: Ministry of Finance and the 2014 Budget Address
* Missing information
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Financing for the 2014 Budget
Its
worth noting that about 10.51 billion of the 2014 budget will
be financed from foreign and domestic borrowing
Therefore,
despite a significant increase in the 2014 budget,
24.6% of the budget will come from borrowing
*Without
doubt Zambia’s debt stock (external & domestic)
is rising
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Govt Rationale for Borrowing
Infrastructure
development (roads, rails etc), Delivery of social
services (education, health etc) E.g US$ 750million Eurobond
While
the intentions are certainly in the strategic interest of the
nation, there is need to be “cautious” so that we don’t
overburden the future generations with the loan agreements we
are signing now
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The
very fact that we have some sufficient breathing space
(Debt sustainability – below 40% of GDP for external debt &
below 25% of GDP for domestic debt) is no cause at all to
allow for excessive borrowing
Borrowing
for investment should be seen to be matched by a
careful balance of prioritization, fiscal discipline and a well
articulated debt management framework
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The Big Question “Increasing debt Stock, Should we
Worry
?”
High
debt levels Imply, high debt service payments which if
not well managed could lead to serious consequences
(*Lenders are business institutions with profit motive, no debt
forgiveness, high interest payments on delayed debt service
payments etc)
Auditor
General Report (AGR) for financial year of 2012,
reveals US$123 million debt not serviced. (*AG 2012 report “its
difficult to ascertain whether there is an effective monitoring and
mgt of bonds by MoF”)
Without
an effective monitoring framework of debt, it would be
difficult to know the true levels of the country’s indebtedness
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The Big Question “Increasing debt Stock, Should we
Worry?”
Essential
sectors of the economy will be affected in due
course owing to a potential future shift in national spending
which will be directed towards servicing of the loans that are
currently being contracted
study: “Responsible Borrowing”, US$ 290 million per
year spent on debt servicing, btn 2003 and 2005
JCTR
The
most vulnerable sector that is sacrificed in favor of debt
servicing is the social sector (* E.g Cuts in Social sector
spending during the HIPC period AFFECTED the effective
delivery of health & educational services)
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Cuts
in social sector spending could worsen the already
existing poor state of health & education services in some rural
areas. E.g Shangómbo
Mulele Area, Shangómbo the CURRENT state of social services;
Service
Status
Water
32 boreholes, but 14 are out of use.
Borehole at school broken down and
pupils bring water from homes
Education basic school (grade 1-7)
1 teacher, 74 pupils, the school is not
adequately staffed
Health
People walk to Mutomena clinic about
K28kilometers & they are 2 medical
staff there
Agriculture Extension
Officer rarely visits the area due to
transport challenges
Source: JCTR Rural Basket, March 2013
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The Big Question “Increasing debt Stock, Should we
Worry?”
Where
and How are we Investing the Borrowed Resources?
.
Roads, Rail etc Improving these sectors could lead to
increased investments. However, delays in procurement of key
equipment & services, reported mismanagement of funds *e.g
the case of ZRL. This could delay progress on some rail and
road works.
.Delayed
works on these road & rail projects would entail
reduced capacity for the country to generate more revenues to
service debts
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The Big Question “Increasing debt Stock, Should we
Worry?”
With
the potential depreciating of the kwacha, against major
foreign currency particularly the US$ dollar external debt
service payments could cost more
Resources
to finance debt servicing will come from taxes.
However, with few taxes collected in the informal sector, the
formal sector will be overburdened with higher taxes in order to
finance debt servicing
Zambia
has a young population that will need to be employed
in the next 10-20 yrs, public sector still the largest employer.
(“this population could delay to enter the labour market in
order to provide fiscal space for govt to service debts”)
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JCTR Position on Debt Status
The
Loan contraction process still lacks transparency and
wider participation of the public as it has remained the preserve
of the Executive (*Without transparency and wider public
participation its difficult for the public monitor the utilization of
debt resources)
The
Laws and policies that governed loan contraction and
management prior to debt cancellation in 2006 still exist. Some
of these laws give too much borrowing powers to the Minister of
Finance with limited stakeholders consultation. There is need to
comprehensively review these pieces of legislation
Zambia
can still raise sufficient revenues to finance
development projects by reviewing the whole national revenue
collection structure
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Conclusion
Borrowing
should take into account the country's capacity to
pay without affecting the delivery of essential services to the
public
The
loans that are contracted must be subjected to
Parliamentary oversight and their use verified. (*Inclusion of
this provision in the draft constitution is a step in the right
direction)
Only
an effective debt management framework will guarantee
a responsible borrowing strategy that takes into account;
provisions for debt servicing, priority sectors to invest borrowed
resources, extensive parliament involvement , etc
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THANK YOU FOR YOUR
ATTENTION
www.jctr.org.zm
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