FIA Zambia: Rethink The Country’s IMF Loan

12 April 2022

In a new report released today, FIA Zambia called on the government to back away from an IMF loan due to the austerity measures that would result in a heavy burden on the poorest Zambians.

The report showcases three examples of alternatives ways of tackling the country’s debt crisis:

1. Outcome-based financing
   These are funds raised to meet a defined goal (such as inequality, renewable energy,technology or poverty alleviation). Outcome-based investors consider both sustainability and the targeted impact of the use of funds.
2. Commodity-based financing
   Targets investors looking for returns aligned with commodity prices such as copper or gold. The “interest rates” used to determine the money Zambia receives may be relatively attractive to mainstream loans.
3. Demonstrating economic discipline with social equity
   Zambia’s debt is not sustainable and fixing it with multiple creditors is a complex process. With the change in government, creditors may be engaged further on a sustainable plan with a social license.

The report further clarifies that with regard to Zambia's debt, the issue isn't so much that we need the cash from the IMF, and so these are the options to replace the IMF, but rather that Zambia is trying to demonstrate economic discipline by volunteering to shackle ourselves to a program.

The cash from the IMF/ECF would be $1.4b and is nowhere near enough to pay off our debt burden and even with an IMF program, lenders do not have to agree to restructure their loans (like China seems to be doing now). So this is way more complex than the IMF.

Jimmy Mwambazi who is one of the report authors comments to say, the "real" alternative to the IMF is frankly a Zambian-led economic / debt restructuring plan that demonstrates responsibility but is equitable and averts the worst social pain. So when we say "options" to the IMF, it's really how best we can renegotiate the debt stock without IMF conditionalities and not raising new money to pay off the loans.

Daisy Mwilima, Fight Inequality Alliance Zambia National Coordinator said: “The future that Zambians want and need is a more equal and just society. An IMF loan that punishes the poor and further enriches the wealthiest among us will take us backwards. We need a fresh approach and fresh ideas. The government should give Zambians an opportunity to participate in this important decision, both through our representatives in parliament and through wide consultations with ordinary citizens. The lack of transparency that has gone with this process so far does not inspire confidence and trust at all.”

According to the findings of the report, In 1992, the Zambian government then lead by the Movement for Multiparty Democracy (MMD) pushed neoliberal policies supported by the IMF and World Bank’s Structural Adjustment Programmes (SAPs), to foster a private sector led economy. The state's role was to maintain the creation of an enabling environment for private business and also act as regulator. By the year 2000, the results of the adjustment process were in and Zambia was now among one of the poorest nations in the world. The World Bank classified Zambia as a Least Developed Country and the United Nations Development Programme Human Development Report 1999 ranked Zambia 156 out of 174 countries, having fallen consistently over the past years, from 136 in 1996, to 142 in 1997, to 146 in 1998. The social indicators revealed declining trends over time and worsening living conditions for most Zambians. Life expectancy dropped to an estimated 37 years, compared to 42 years at the time of independence (1964) and 54 years at the end of the 1980s. National household surveys revealed that the percentage of people living in poverty increased from 70 percent of the population in 1991 to about 74 percent in 1993, decreased to 69 percent in 1996 and then rose again to 73 percent in 1998.

In view of this, Mwilima said: “a decade of austerity measures would spell disaster for the vast majority of Zambians. This is evidenced by history and we do not need to experiment with it at the expense of the majority of Zambians who do not have access to free amenities.We have plenty of alternatives to borrowing from the IMF as a country. Instead of insisting on a failed ideology that has impoverished us before, we can and we must do better. And Jenny Ricks, Fight Inequality Alliance Global Convener who was present at the launch said “austerity measures forced by the IMF will not create a more equal society for Zambians. It would cost lives and livelihoods amongst the poorest. Across the world countries are facing an austerity fuelled ‘recovery’ from Covid-19. There is still time for Zambians to say no austerity and the harsh conditions attached to the IMF and demand for better from their government. We need a transformation of the economy so everybody can live a life of dignity, not failed policies that will only make the rich even richer.”

Meanwhile, economist Dr.Grieve Chelwa, who is one of the report authors said: “Our report shows that, contrary to what has been argued by the government, the country did have financing alternatives apart from the IMF. Some of the alternatives would have allowed for raising of money that did not come with harsh IMF conditions. Sadly, these alternatives were not considered because the government did not consult widely in arriving at its position.”

The following are the recommendations emanating from the analysis in this report:

1. As the analysis in this report demonstrably proves, there were many alternative options to getting on an IMF programme. For example, our analysis reveals that the best pathway forward would have been a non-IMF financing option implemented with increased fiscal discipline in order to achieve the desired credibility. The government should consider opening up the policy consultation space.
2. A close analysis of the policy process that led to the IMF agreement shows that it lacked transparency. The new government promised transparency and sadly such transparency was missing from this process. In the interests of the people going forward the government should devise economic policy in the open.
3. Finally, the report calls for a reversal of the generous incentives given to the corporate
   sector especially the mining industry.

ABOUT THE FIGHT INEQUALITY ALLIANCE ZAMBIA

The Fight Inequality Alliance Zambia is a movement uniting a wide range of grassroots/rural groups, civil society organisations (CSOs), activists, artists, women and youth groups to collectively fight inequality in Zambia. FIA Zambia is countering the excessive concentration of power and wealth in the hands of a small elite and achieving a just, equal and sustainable Zambia. The Alliance works by linking the intersecting struggles against inequalities of gender and economic status. This work is led and defined by affected people, never “on behalf of others,” and is rooted in the values of the Alliance. We recognise that the growing gap between the rich and the poor adversely undermines access to social services and the protection of fundamental human rights. Citizens in any country play a vital role in the fight against inequality, thus, the Alliance notes that in order to reverse the growing levels of inequality seen in Zambia today, the most affected and most marginalized groups must be in the frontlines to challenge the status quo.