Zambia’s Government must leverage the position of the Creditor Committee

ActionAid Zambia (AAZ) would like to commend the Zambian Government and the Creditor Committee of Zambia, chaired by China, for their important and unprecedented strides towards debt restructuring and ultimate cancellation. Zambia’s debt saga has been an issue of debate for several years now – and the urgency for resolving this has been escalated by the COVID-19 pandemic. Over the past decade, the government had embarked on ambitious infrastructure development that fueled the need for domestic and external financing. The global economic fallout following Covid and the war in Ukraine made government debt unsustainable, rising as it did from 23.8 percent of GDP in 2014 to 141.3 percent of GDP by 2020 [1]. This triggered Zambia’s debt default and led to the present plans to restructure the debt.

Given our diverse debt portfolio, AAZ recognizes the complex nature of these negotiations, particularly with the private creditors. Building on the current position and the provision of financing assurances, the Government must leverage the support of the Creditor Committee to ensure the agreement with the International Monetary Fund (IMF) is beneficial to the Zambian people. Having reached the staff-level agreement in November 2021, neither the IMF nor the Zambian Government has been forthcoming on the exact details of their agreement.

Nalucha Nganga Ziba, Country Director of ActionAid Zambia, says:

“We welcome the debt restructuring deal as a long-overdue first step towards a sustainable economic recovery, but its success will depend heavily on three factors. First, the IMF agreement must enable continued investment in health, education and other vital public services, including through ambitious increases in tax revenue. Second, we need robust new legislation to ensure future government borrowing is transparent and accountable. The bill on public debt management will need intense scrutiny. And third, Zambia's steps to repay the financial debt it owes the rich world must be matched by urgent steps by rich countries to repay the massive climate debt they owe to Zambia. Devastating droughts and floods have already pushed many ordinary Zambians deeper into poverty, and will cripple our economy unless the rich nations who caused global warming provide the funds to enable Zambia to cope with ever-increasing climate loss and damage.”

The current government of Zambia has made significant pronouncements for and commitments to all sectors of the economy. Social sectors, such as education and health, have already seen numerous changes, such as the introduction of free education and the recruitment of teachers and health workers. However, to develop and sustain service delivery going forward, there will be a need for continuous investment in the civil service. This will require bold action to increase tax revenues through progressive and gender-responsive tax reforms.

Unfortunately, austerity measures have historically been part of the conditions required for an IMF package. ActionAid, therefore, calls on the Government and the IMF to demonstrate transparency and reveal the content of the staff-level agreement that is subject to board approval in September 2022. This would eliminate speculation and doubt among stakeholders around the terms and conditions of the deal and who it ultimately benefits.

Specifically, ActionAid calls on the government to resist any pressure for public sector wage bill cuts or freezes [2] that would compromise on service delivery, particularly in the health and education sectors. The recent recruitment of 30,496 teachers has been welcome, but with over 100,000 applicants and continuing shortages in some areas, the exercise revealed the need for more consistent and regular recruitment – particularly in light of the large influx of learners since the introduction of free education in January 2022. There are clear alternatives, not least through taking action to increase Zambia’s tax to GDP ratios so that increased spending can be sustainably financed.

In addition to this, debt restructuring to enable Zambia to pay off the debt they owe to industrialised countries must be accompanied by commitments to pay the massive and ever-growing climate debt that industrialised countries owe to Zambia, which is a much bigger medium-term threat to Zambia’s economic stability and development.

The enactment of the Public Debt Management Bill that is poised to reinforce accountability and transparency must also be prioritized to ensure debt sustainability moving forward. ActionAid calls on Civil Society, and members of the public to support members of parliament to ensure that the Bill is well vetted and robust enough to ensure independence and effectiveness of the public debt office and adequate parliamentary oversight of future debt contraction.