By Patson Chilemba
Former Bank of Zambia Governor Dr Caleb Fundanga says the soon to be assented to Public Debt Management Bill 2022 is commendable but may not be a complete safeguard against over-borrowing because ruling parties use numbers to get through their wishes in parliament.
And former Finance minister Ng’andu Magande highlighted the importance of harmonizing the Public Debt Management with instruments like the National Planning and Budgeting Act 2020 so that laws dealing with financing are not at variance with each other.
Giving a brief analysis on the passing of the Public Debt Management Bill 2022 by the National Assembly, which is awaiting presidential assent, whose object are to provide for the raising of loans and grants, the issuing of guarantees, the approval of loans by the National Assembly, issuing of loans by or on behalf of the government, establishment of sinking funds, establishment of the Debt Management and Provide for its functions, repeal of the Loans and Guarantees (Authorisation) Act 1969, and the General Loan and Stock Act, 1931, and other matters connected or incidental to the foregoing, Dr Fundanga opined that the soon to be law may not cover all the loopholes in as far as debt contraction is concerned.
“Well it may not entirely cover that but at least it increases the level of public scrutiny. Obviously if any attempt to borrow goes through parliament, it will receive a lot of publicity and scrutiny even from non parliamentarians. So it’s a good thing if we have that. But I am saying that it may not entirely remove because you know that in parliament there is always the party in government, is a majority in parliament, right?” Dr Fundanga observed during an interview with Daily Revelation Media. “On that basis probably any proposal that any ruling party would put up probably has a very good chance of going through. So all I am saying is that that requirement may not entirely eliminate over borrowing because the party in power has got the majority and they can push it through. I think it would be very helpful if also other measures to put limits in what can be borrowed. You see like on domestic borrowing there are limits which have been in existence all the time but sometimes they are pushed, the limits can be increased through requiring parliament to remove that limit.”
Dr Fundanga stressed the importance of the bill as it will ensure that members of parliament can question issues which relate to the particular indebtedness and also the overall question of how much the country owes, saying those were questions that were likely to arise each time there was a request to approve new levels of borrowing .
He said the scrutiny on the debts to be acquired was very important in the life of the country.
“I think the government should be applauded for that. But let me also add that this is not the first time that an attempt has been to take any new borrowing to parliament. I recall that the last constitutional review in which I participated as the chairman of the committee that was looking at government and public finance generally, we also had put up that request to take any borrowings to parliament and it was approved by the constitutional review committee. And I am sure if you check you will find that there was that approval,” Dr Fundanga said. “But whether, I don’t know what happened later on whether it was implemented or they just ignored it…it wasn’t implemented but we did put it in at that time. So if it wasn’t implemented I am happy that the current government has come to implement it because we had proposed it a long time ago.”
In the bill, there is a provision that amounts outstanding of the total government debt borrowed from within or outside Zambia shall not exceed 65 percent of GDP at current market prices computed for the immediate past financial year, and that payments due on foreign debt shall not exceed 25 percent of the average annual recurrent revenue computed on the basis of three preceding financial years, but that the debt ceiling referred to under the act and the maximum amount of guarantees shall only apply after five years of the commencement of the act, Dr Fundanga observed that “one would be happy to have it implemented immediately.”
“Why after five years? Why not now?” the former BoZ governor asked. “Maybe they are looking at the current levels which are very high, so probably five years will give the government time to clear and then be able to live up to that need. But I would certainly have been happier if it was immediately implemented.”
Dr Fundanga said “maybe there are some difficulties about immediate implementation, I cannot know.”
He said it would be wise to find out from the Ministry of Finance “on why five years.”
“But certainly it’s a good law and if it’s a good law it needs to be implemented immediately because it should have been implemented years ago and it wasn’t. So that the new government has decided to implement it I think is a plausible move they have made. We need to congratulate them but as to why it (Debt ceiling provision) will come into force in five years time I think the answers can only be found at Ministry of Finance,” Dr Fundanga said.
Former Finance minister Magande described the bill as a good idea, saying it was actually included in the draft constitution for 2016 except it was removed when finalizing the constitutional making in parliament.
He said at that time studies had already been done about most governments who already had the provision in their laws that loans should not just be passed by the Ministries of Finance or cabinet to borrow money.
“Because as you can see now, even those who borrowed US$750 like the former deputy (Finance) minister (Miles Sampa) of Matero, now he’s saying ‘no, me I told them, me I said this.’ But how do we believe he told them? Even if he told them he didn’t win. Why didn’t he win? So I think having a statute binds everybody, because if someone disobeys a statute then you can go to the courts and seek for injunction or anything,” Magande said. “So it’s a very good effort and I want to congratulate our new government for doing that. So I don’t expect that any minister being out there, perhaps in Beijing will just sign for a loan. There will be no such loans and therefore it means when a proposal goes to parliament then the executive will explain what that money is for.”
Asked on the part of the bill stating that advances to the government under the BoZ Act 2022 or loans directly contracted by a public body from within the Republic shall not require parliamentary approval, Magande observed that there was no government that does not borrow, but what mattered in the case of Zambia was that if the country was borrowing from the international market it was borrowing foreign exchange, and because of fluctuations in the foreign exchange markets the amounts borrowed differed from the amounts payable.
He described foreign borrowing as dealing with unpredictable circumstances, but borrowing locally through instruments like treasury bills or “assuming Zesco becomes again very viable we can’t allow them to be keeping $1 billion which they are earning from exports in an account for nothing. I think the government can say can we borrow this money we will pay you later,” and by implication the country would be saved the risk of fluctuations in the borrowing.
But asked on the debt ceiling which will come into force after a period of five years, Magande interpreted the move as having been taken on account of the current huge debt burden, the $14 billion foreign debt owed by Zambia.
He said his thinking was that the government has been negotiating with lenders and might have come to an arrangement with lenders that they will give them a moratorium of five years.
“So they are saying since this big debt which is there now will still be there in the next four years we can’t put a limit because the new government will also require new projects. So I think they are covering themselves but I suspect it is to do with the understanding with the lenders of the $14 billion. So perhaps that is the moratorium they are going to give us,” Magande, who was minister of Finance from 2002 to 2008 during the period the country negotiated another $7 billion debt forgiveness, said.
Parliamentary oversight shall not apply in the case of natural disasters, state of war and state of public emergency or an exceptional expenditure in accordance with the National Planning and Budgeting Act of 2020, although with a caveat that the minister will have to tell parliament on the action taken after the events have passed. Asked on the event where the Public Debt Management 2022 were to find itself in conflict with provisions of the other acts like the Budget Act for instance, Magande said between the Finance act and the Budgeting Act, one dealt with projects generated from the ministries (Budgeting Act) with the other one dealing with financing and therefore the need to align them to ensure there was no variance.
“That (new law) must be matched with Budgeting Act, so that every year when in fact there is a budget to come the ministries must not operate on a daily basis they must operate on future programmes,” Magande said. “That’s why we need to have a development plan which already shows that in 2025 we will need so much of this item. We will need so many classrooms in 2025 so that by then the Minister of Finance will be saying I know the projection of expenditure by the minister of Education in 2025 so I must push those who are producing projects that earn money like the mines and so on to make sure that their productivity also increases so that by that time I have money to spend on the schools which are already planned now.”
He said haphazard programmes will not work, saying he assumed that there will be a process and a programme in anticipating how many teachers are coming out of college for instance, including how many schools should be built so that everything was moving in tandem with people who were raising money .
Magande said in the Zambian constitution Chapter 349, the minister of Finance was a company incorporated, with powers and liabilities to sue and be countersued, saying luck enough nobody thought of suing him, but recently because some loans were gotten by individuals people were arguing that those individuals should be sued in their individual capacities to pay back the loans they got the nation into.
“If you want to have a look, you look for the constitution of the Republic of Ghana of 1992, article 181 on page 120 they talk about the loans. Actually we had copied quite a lot of that when we wanted to introduce this act which has gone through. So perhaps you see what is happening. And then you realise how come Ghana which is borrowing money from the IMF every two years has now developed so much from $3000 per capita now they are talking of $6000,” said Magande. “Because they have been borrowing from the market. They go to the cheap loans from IMF. They borrow with a moratorium of 10 years, so they have even borrowed I think five or six times during the same period we borrowed the $14 billion. But because we were borrowing from expensive sources interest rate becomes the problem now.”
This story has been developed following a training and mentorship programme under the Strengthening Accountability Networks Among Civil Society (SANCUS) project by Transparency International Zambia with the support of the European Union.
