/ 12 October 2018

Zambian economy on slippery slope

Since Edgar Lungu came into power
Since Edgar Lungu came into power, the government has spent large amounts on infrastructure and goods and Zambia’s debt has ballooned to a reported $9.4-billion. (Rogan Ward/Reuters)

In the face of spiralling debt, the Patriotic Front will struggle to take the next election

On October 18, Zambia will mark its third annual National Day of Prayer, Fasting, Repentance and Reconciliation. But as the country is rocked by rising fuel prices, a rapidly depreciating currency and an apparent foreign aid crisis, it’s clear that it will take more than prayers to address the country’s concerns.

A decade ago, Zambia was largely debt-free. The country’s debt burden stood at $1.9-billion when the ruling Patriotic Front took power in 2011, but within seven years it has ballooned to a reported $9.4-billion — though experts fear that more unreported debt has already accrued. The International Monetary Fund (IMF) and international markets now consider Zambia at high risk of debt distress.

The kwacha has depreciated by 20% so far this year, a plunge matched only by the currencies of Turkey, Angola and Argentina.

Reckless borrowing scuppered a $1.3-billion rescue package from the IMF, which suggested that a bailout would be hard to justify under the state’s spending conditions.

Since Edgar Lungu’s ascendance to president in January 2015, corruption has become increasingly apparent in public life. The ruling Patriotic Front has gone on a whirlwind infrastructure spending spree, and the government has procured goods and services at vastly inflated prices.

Amid a growing list of scandals was the awarding of a tender to a close compatriot of the president to provide 42 fire trucks to the state at the vastly inflated price of $1-million each; the trucks were valued at only about $200 000 apiece.

Despite the actions of several civic groups, the public response remained muted. But as the scandals pile up and the economy suffers, citizens are beginning to take notice. In a shock move in late September, Britain announced that it, along with Ireland, Finland and Sweden, had frozen aid to Zambia because of the reported misappropriation of $4-million in funds earmarked for social cash transfers. Britain’s aid freeze is believed to affect health, education, nutrition and social welfare.

In early October, the government reportedly repaid most of the missing money, saying the funds had not been spent and were in fact not missing.

To address its flailing currency, the government has had to increase the price of fuel. This has been an unpopular move and sparked panic buying.

The state has also failed to pay statutory grants to the country’s largest university since August, prompting a strike by restive staff and students. Last week, police responded to the strike with teargas, firing it into a university residence and causing the death of a fourth-year student, Vespers Shimuzhila. In a sign of the country’s political polarisation, the ruling party blamed Shimuzhila’s death on opposition leader Hakainde Hichilema.

In another effort to balance their books, the state has tried to increase taxes on copper mining companies. But the ad hoc nature of this change and its timing has many concerned. The mines have warned that they may have to scale down production in the face of the new tax regime. The threatened loss of mining jobs would be deeply unpopular on the populous Copperbelt, and will slash the country’s foreign exchange earnings.

Lungu has come under growing pressure from development partners and citizens about the country’s growing indebtedness and the rising costs of goods and services.

He has set his sights on securing his candidacy in the 2021 elections, with a proxy battle ongoing at the Constitutional Court over his eligibility to run in the polls. Despite the court case, the ruling party has confirmed his candidacy and the posters and T-shirts have already been printed.

But, with the economy on the ropes, Lungu’s re-election chances in 2021 look increasingly slim. A review of online media shows that websites such as News Diggers and Lusaka Times are filled with debate about whether the ruling party can hold the next election, and what might happen to the party if their re-election bid fails.

The involvement of high-profile ruling party figures in these debates lends credence to the perceptions of a probable loss at the polls. Former close aides of Lungu are also criticising the president and the party, and appear to be building a platform to launch themselves as presidential candidates for 2021.

The debt crisis and widespread corruption may be enough to take the presidency from the Patriotic Front. That is, unless they begin to rely more on coercion and electoral irregularities to maintain their hold on power. Perhaps that is why, even under an austerity budget, the government has raised military spending for 2019 to nearly 6% of the total budget, more than double the allocation for social assistance.

Then again, maybe the president would be wise not to be in power come 2022, when the first of three $1-billion Eurobonds matures. No amount of praying is going to make the numbers add up differently.

Nicole Beardsworth is a political analyst and postdoctoral research associate at the Interdisciplinary Global Development Centre at the University of York in Britain. A version of this article first appeared on the Presidential Power blog