FIA Zambia: Alternatives to the IMF

12 April 2022

Following confirmation that Zambia will be pursuing an IMF loan by the Ministry of finance through the 2022 national budget presentation on 29th October, 2021, the Fight Inequality Alliance Zambia embarked on research to determine the potential impact of an IMF loan on poverty, inequality and Zambia’s future at large. On 3 December 2021, the IMF announced that it had reached a Staff Level Agreement with the Government on a USD1.4 billion IMF program, over three years. It is still unclear how the funds will be disbursed, or the conditionalities imposed.

In light of this, the alliance has since launched the report titled 'Options for equitable economic growth and development in Zambia'. The Fight Inequality Alliance Zambia is of the strong view that, while it is necessary to restructure Zambia’s debt and bring the economy back to its feet, it is important that the government does not take a route that will be the most detrimental to the majority poor Zambians and subject them to extreme levels of poverty as well as widen the inequality gap further.

The IMF and Zambia have had a long relationship with IMF Balance Of Payments (BOP) support rising to prominence during the economic crisis of the late 1980s and 1990s. History shows that the IMF support to Zambia, particularly in the 1980s and 1990s, has been disastrous for the country’s growth and development aspirations.

It's therefore puzzling to see why the Zambian government would once again consider taking this very route and bring devastating consequences to the majority poor Zambians.

According to the evidence in the study, if the Zambian government insists on this path, the next couple of years in Zambia will be very difficult for the majority of the country’s population, especially for the poorest Zambians. As evidenced from the past, the burden of these neoliberal economic policies will fall on the poor while the benefits accrue to a small elite that is well positioned with capital and connections to lobby for favourable economic policies. The puzzling reductions in corporate income tax and favourable tax treatment provided to the mining houses in light of the need to “tighten our belts” is an example of what we need to expect as Zambians. All things considered, this will result in an increase in poverty and inequality in the country as already evidenced by the already skyrocketing prices of food and other commodities.

The Fight Inequality Alliance Zambia is of the view that while Zambia needs to recover from the current debt crisis, it is not necessary to sacrifice the majority of poor Zambians when there are other alternatives to the IMF loan that would be better for Fighting inequality in Zambia. Guided by our ambitions and our undying courage to see the end of Inequality, We as Fight Inequality Alliance Zambia, fully attached to the realities of the citizens of our country affected most by inequality, Recognize the damage that Inequality has done and the extent it has gone to undermine the dignity of our people, we therefore recommend a people’s economic recovery by way of the following:

1. PROTECT THE POOREST ZAMBIANS
   The drastic reductions in government expenditure over the next five years, which we estimate at USD4 billion, will impact the poor and marginalized more than any other group. The subsidies that are targeted(/have been removed) for removal (energy and agriculture) have the poor and marginalized as the biggest beneficiaries. We can only assume that this is as directed by the IMF as the conditionalities are still a secret, however, following the war in Ukraine and other global dynamics, the fuel prices are at an all time high. The removal of subsidies on fuel and energy as well as student allowances on account of being “unsustainable” are reminiscent of the structural adjustment programs that were previously implemented under a World Bank facility in the 1990s and were characterised by a disregard for much-needed social programs. This type of austerity targets the majority poor zambians who may not be able to self organise and negotiate for other ways of fiscal discipline. In the interest of Fighting inequality and following the rise of petroleum products on the global market, we demand that the government reverses the removal of subsidies in order to protect the poorest of Zambians from the devastation of rising food prices.
    
2. TRANSPARENCY
   After a close analysis of the policy process that led to the IMF agreement, we have noted with concern that it (the process) lacked transparency. Even though the Staff Level Agreement was announced with much fanfare on 3 rd December 2021, we are yet to know the exact content of the agreements between the government and the IMF. The negotiations took place behind a veil of secrecy involving only a small clique of technocrats. Further, it appears that parliament, the ultimate representative of the people’s aspirations, had very little oversight of the entire process. The new government promised transparency and sadly such transparency is missing from this process. It would be in their best interests and in the interests of the people going forward to devise economic policy in the open. We demand that the government opens up consultative processes which will allow as many Zambians as possible to have a say in these types of decisions. 

   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.
    

3. TAX THE RICH; UTILIZE OUR NATURAL RESOURCES
   We also call for a reversal of the generous incentives given to the corporate sector especially the mining industry through the 2022 national budget. The Minister of Finance in his budget speech announced the reduction of the corporate income tax (CIT) from 35 percent to 30 percent. Further, he announced that the Mineral Royalty Tax (MRT) had been made tax deductible, meaning that mining houses can now expense MRT from their revenues when calculating profit. Both policy shifts are going to cost the country hundreds of millions of dollars at a time when the IMF and the Zambian government are calling for anti-poor austerity policies. It is common knowledge that Zambia’s corporate sector has been a major culprit in tax dodging schemes, a scenario explaining the low effective CIT rate in the country. The mining sector has not performed any better in this regard. Many credible reports have documented largescale tax avoidance and evasion on the part of the mines that has likely cost the treasury billions of dollars over the years. Reducing inequality and poverty will require the marshaling of all of the country’s resources, especially revenue from our God-given mineral resource.
    
4. EXPLORE OTHER ALTERNATIVES - THINK BEYOND THE IMF
   As you will be able to see from the analysis of the Options for equitable economic growth and development in Zambia report, there are 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. Unfortunately, the Zambian government was interested in engaging with diverse voices at the very early stage in the process. A strong recommendation emanating from this is that going forward, a mechanism for broad-based consultations be put in place in such a way that decisions arrived at by the Zambian government are based on widescale consultations and are based on broad public support. It is very disappointing to see that the process of negotiating towards an IMF programme was restricted to officials at the Ministry of Finance, the Central Bank and the IMF itself. This is unacceptable as the implications of the agreement will have wide-ranging impacts beyond these narrow set of technocrats. The policy consultation space should have been left wide open. For example, the new government should have called for an Economic Indaba very early on to debate alternatives before committing to a single policy position.

All in all, we are convinced that 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.It is therefore our hope that the report will be well utilized for referral purposes by those in authority to find better ways of recovering from the debt crisis while reducing inequality and other social challenges that widely affect our marginalized citizenry.

Download the 'Options for equitable economic growth and development in Zambia' Report

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