Dear Editor,
1. The debate about whether we really need an IMF loan is clearly an unending one, largely because of the impact that the decision we are going to make as a nation will have on the lives of our people.
You see, there are three primary reasons why countries get an IMF loan, and in most instances all three reasons must exist to justify placing a country on an IMF programme.
The first reason is if a country is in a consistent balance of payment deficit position. The second is when a country lacks fiscal discipline such that they have a consistent fiscal deficit.
And the third is if the country is unable to borrow from anywhere else i.e. where it has defaulted on loans too many times such that no one wants to lend it money anymore. The question is; does Zambia fit the bill? Do we tick the three boxes here?
2. With regard to the balance of payment position, firstly allow me to explain what this is. As a country we need to import things such as fuel, machinery, repay our external debt etcetera and we cannot pay for these things using Kwacha.
We need foreign currency, mostly the US Dollar. Our major source of forex is the exports that we make, mostly our minerals such as copper. When we sell our copper outside Zambia, we are mostly paid in US Dollars and that is the money that we use to import fuel and other things.
When the Dollars that we earn as a country through exports exceed the Dollars that we spend on imports, the difference is called a balance of payment (BoP) surplus. Of course the opposite is called a BoP deficit.
3. As a country, we often need to do a projection of our BoP position for the next couple of years so that we can plan accordingly. Like all projections, the BoP projection is based on assumptions, some of which come true, some of which don’t.
However, you might wish to know that unlike other countries in the region, our central bank which we call the Bank of Zambia does not have any Research Department to make these projections, despite having so many employees with PhDs.
Similarly our Ministry of Finance also does not have any Research Department. I know that your next question is how we then manage to do the projections about our balance of payment position and other economic projections if our key institutions do not have research departments?
Well, the IMF does the projections for us based on the information that they collect when they come for article 4 meetings.
4. The last time that the IMF did BoP projections for Zambia was in 2019 and they projected that we were going to have a BoP deficit of approximately US$120 million for the years 2020, 2021 and 2022.
In their BoP projections, the IMF also said that our projected BoP deficit would become a surplus if we got an IMF loan. It sounds like a conflict of interest right? Well, l agree. These IMF economic projections are usually self-serving to the IMF itself. And by the way, our new UPND administration relied on these BoP projections of 2019 to make the decision of putting the country on an IMF programme. By the way, the BoP projections which the IMF made in 2019 for Zambia have so far not penned out because instead of an annual BoP deficit of approximately US$120 million, we are currently in a BoP surplus for 2021 of approximately US$167 million year to date. This has largely been caused by the increase in copper prices on the world market due to increased demand for electric cars, as the world goes green. Copper is a major input in electric vehicles which means the high copper prices are likely to be sustained in the medium to long term.
The 2019 IMF projections for Zambia’s BoP position was based on copper prices of US$5, 000 per metric tonne, the current copper prices are almost double of that. And yet the UPND administration wants to insist on relying on the clearly unreliable IMF projections of 2019 to make their case for an IMF bailout loan.
Anyone with a contrary view such as myself is insulted and scandalised by UPND supporters instead of their offering a sober counter-argument why the country should be put on an IMF programme.
5. This brings us back to the initial question; Do we really need to get on an IMF programme and procure an IMF loan?
Tomorrow l will address the issue of our fiscal position, both current and projected, as well as whether it merits the country being put on an IMF programme or not.
But my appeal to fellow Zambians is that for as long as you get intimidated with the insults of our colleagues from the UPND to those who hold contrary views, you are doing this country a disservice.
So far all the voices that were against the IMF loan have quietened because of the venom that has been unleashed on them by UPND supporters.
Unfortunately UPND supporters do not want anyone to challenge the President on his policy decisions, even though the decisions that he makes affect us all and not just UPND supporters.
But for the sake of our country, l want to appeal to everyone who holds a contrary view on the issue of the IMF to speak freely without fear of intimidation or insults. You just need to develop a thick skin for the sake of the nation. Besides, a couple of insults from UPND supporters will not break any bones.
SEAN TEMBO,
PeP President.
