Zambia’s Hichilema is lauded for economic gains, but austerity is stirring anger among poorest

​​Zambia defaulted on its debts in November 2020 after suffering dire ramifications from the Covid-19 pandemic. Nine months later, Hichilema assumed the presidency and embarked on a quest to revitalise the economy with the help of the IMF.

The lingering impact of the PF’s opaque borrowing policies and corruption, which left Zambia heavily indebted, still poses a stern challenge for Hichilema, who, among other measures, has withheld payments to local suppliers and contractors to deter payment fraud that was rampant during the PF’s 10-year era.

“There was more money in [the] PF, but only at a certain point in time when it was being borrowed and borrowed […] this is why we have to go the creditors and say ‘colleagues, at the rate we’re paying these debts, very little money is being left [for us to spend], let’s negotiate’,” Situmbeko Musokotwane, the finance minister, told a symposium in Chipata in Eastern province.

Signs of recovery

Zambia’s $1.4bn deal with the IMF, which was announced in August 2022, was widely hailed as a crucial step towards restructuring the country’s public debt, which amounted to $27bn (close to 115% of GDP) at the end of June.

Before reaching an agreement for the 38-month loan programme, the government secured $1.3bn special drawing rights from the Fund in August 2021.

Zambia has shown signs of recovery, overcoming its first recession in 23 years.

Inflation stood at around 9.7% in October, down from all-time highs in the ballpark of 24% last year. Also, the Kwacha is currently among the world’s best-performing currencies.

Lending rates are dropping as the economy is set for a growth rate of at least 3.5% this year after a 2.8% contraction in 2020, which marked the first recession in 23 years. Last year, the Zambian economy marginally grew by 1%.

Hiring wave

Zambia has recently hired over 30,000 new teachers and over 11,000 health workers in an unprecedented mass recruitment.

The authorities are also hiring more soldiers, police officers, warders, and wildlife service rangers to make a dent in the high unemployment rate. However, Zambia’s debt distress is still leaving it incapable of hiring medical doctors. Currently, one doctor serves 12,000 patients.

The country, which froze the hiring of public servants in 2016, after being suffocated by heavy debts, is projected to have about 60,000 new public servants by 2023.

You can’t say the cost of living is high because of President Hichilema; he inherited that problem

Public workers account for 13.9% of Zambia’s 2.9 million employed population. Before the country defaulted in 2020, the treasury was spending up to 68% of revenue on debt servicing and 43% on emoluments for civil servants, which have ballooned public debt.

Economist Chibamba Kanyama says the IMF is “now much more flexible and much more responsive” to social spending than it used to be beforehand, in terms of conditionalities.

“The Fund will not dictate […] Zambia [on how it] achieves all [the] agreed milestones and this gives space for the government to employ civil servants, increase civil service salaries and expand on constituency development funds without much resistance from the IMF,” says Kanyama. “The IMF of yesteryears is not the IMF of today.”

More dividends

Hichilema has dramatically increased public funds earmarked to all 150 constituencies by about 1,500%. The current amount, K25.7m (around $1.55m) per constituency, is set to rise to K28.3m next year. “We’re taking away the money from the centre where the big thieves are in Lusaka and taking it to the constituencies,” the president said.

The government is also providing free education in public schools from primary to secondary level, and restoring a nationalist-inspired programme, which was abandoned in 1991 when the economy collapsed under a one-party state rule.

Zambia has also restored meal allowances for university students, which was abolished in 2019 after the government went broke, and awarded public workers a 10.5% salary increase for 2023, the highest pay rise in close to a decade.

Hiring of new workers and salary hike and increased social spending are expected to push the government deficit to almost 10%, up from a current 6.6%.

Opportunity cost

As much as economists have widely commended Zambia’s recent economic reforms, the IMF-dictated austerity measures have left the 54% of the population – which lives on $1.90 per day – struggling even more to make ends meet.

To increase social spending, the government decided to eliminate “regressive fuel subsidies” and embark on reforms to increase tax revenues.

Between 2019 and 2021, the treasury – under the PF – allocated $67m to monthly fuel subsidies at the pump. During this period, the government incurred a fuel import bill of $500m to private transporters.

The situation was bad under PF but now things are worse

In December 2021, after the general election, the new government scrapped the subsidies and quit importing fuel, making way for the private sector. With Zambia fully relying on imported fuel, local consumers have become subject to international oil prices, which have been sent soaring due to the ongoing Ukraine war.

Last October, the government reinstated the value-added tax (VAT) and excise duty on petroleum products. This pushed up petrol and diesel prices, which have jumped by about 72% over the past 11 months.

Stagnation

Zambia’s recent reforms have taken a toll on many businesses.

“The economy is very bad, there is no business [no demand]; even our regular customers are complaining that they have got no money,” says Patrick Lungu, a 27-year-old Zambian who sells cheap Chinese-made garments along Lusaka’s busy Cairo Road. “We’re really suffering.”

Luka Simusokwe, who sells wooden furniture and steel fabricated gates in Lusaka’s sprawling Kalingalinga slum, echoes similar sentiments.

“The situation was bad under [the] PF, but now things are worse, we have no one coming to buy our goods yet we’ve to pay our workers and also feed our families,” he says.

Simusokwe, a father of eight who has been running a backyard factory for the past 18 years, describes the current demand for his products as the “worst” ever.

For his part, State House spokesperson Anthony Bwalya says Hichilema should not be blamed for the current high cost of living.

“You can’t say the cost of living is high because of President Hichilema; he inherited that problem – the president inherited an economy that was dead – at minus 2% – and he has had to make decisions candidly and responsibly,” says Bwalya, who hails from Hichilema’s United Party for National Development (UPND).

Mining hopes

For the first time in 24 years, Hichilema’s UPND won the crucial Copperbelt province vote on a promise to resolve problems at the two biggest mines: Mopani Copper Mines (MCM) and Konkola Copper Mines (KCM).

Musokotwane says the government is “pushing hard” the mining sector “because liquidity is going to come from outside when we [the state] export copper”.

Zambia is banking on mining 3m tonnes in the next 10 years to anchor its economic recovery. However, this goal appears far-fetched thus far.

Both KCM and MCM are currently in dire liquidity stress and production levels have plummeted to levels that can’t sustain operations. This in turn is hurting the economic activity of surrounding communities.

KCM was forcibly taken over by the former PF regime in 2019 after the owners, Vedanta Resources, were accused of mismanagement. In January 2021, Zambia acquired 90% of MCM from Swiss-based Glencore at $1.5bn. The two mines have been on a downward spiral after those two transactions.

“The problems at Mopani [MCM] and Konkola [KCM] have had a severe impact on the economy of the Copperbelt and Zambia,” says Peter Sinkamba, a Copperbelt-based mining sustainability expert.

Copper production this year has been less than the 880,000 tonnes mined in 2021 after production figures, for the first nine of the year, showed that output for the red metal fell by 4.6% to 593,500-tonne year on year, reflecting the encumbrances at KCM and MCM.

“As a country, we depend on mining for foreign exchange, employment and general business for domestic and international suppliers – so the impact is extended, and that is why today we are grappling with this cash crunch and economic problems in mining communities,” says Sinkamba.