According to the most recent estimates on the country’s foreign public debt, it stands at a gargantuan and mind-boggling US$12.7 billion for an economy the size of Zambia. What is unclear. The question is, however, how this debt was accumulated, what the money was used for, and, most importantly, who is due what and on what terms.
It must be stated from the outset that examinations by the government that the money was spent on infrastructure projects will never be satisfied without individual audits of all debt accumulated since 2011. Simply put there must be detailed breakdowns showing 1. When the money was borrowed 2. Who the money was borrowed from. 3 What the money was used for 4. How much is still outstanding and 5 The terms and conditions of the debt
It is also necessary to investigate how we get here in the first place. When MMD left government in 2011, there were more than US$2 billion in reserves; how did it turn into US$12.7 billion in debt in 10 years of PF rule? According to Bank of Zambia Governor Chris Mvunga, reserves stood at roughly US$1.4 million as of May 27, or 3.5 months of import cover. Needless to add, reserves have been tapped to cover debt in the recent past.
At the conclusion of the UNIP Era, amounts ranging from $4 to $6 billion were bandied around as the total debt left after 27 years in power, but the roots of that debt are not obscure. A brief history lesson will suffice here.
In October 1973, four Arab armies invaded Israeli and almost wiped the Jewish state off the face of the Earth, in what is now known as. the Yom Kippur War. Yom Kippur is the holiest of holidays in the holy land and no Jew, including soldiers, is supposed to work. The Israelis were caught off guard and the Arabs were close to achieving their objective when the West particularly the United States intervened driving the Arabs back and saving the Jewish state from imminent extinction.
In retaliation, the Arabs used their most potent weapon, Oil. Through the Organization of Oil Producing and Exporting Countries (OPEC) under the stewardship of Saudi oil minister Sheikh Zafir, the vanquished Arabs increased the price of oil by 400% overnight. The intention was to punish western economies heavily reliant on Arab oil, but the action also affected third world countries also heavily dependent on oil. The oil crisis-hit countries like Zambia a severe economic blow.
At around the same time, the Vietnam War was coming to an end, and demand for bullets and by extension copper and copper prices fell drastically. So for Zambia, the price of its largest import increased fourfold while export earnings diminished in an almost similar fashion, leaving huge budget deficits for the immediate and medium-term future. In practical terms this meant all projects which were being financed mostly from the country’s own resources were now in disarray, the import bill for not only oil but an array of other requirements ranging from industrial equipment to essential drugs became unaffordable.
The Arabs, flush with newfound wealth, filled with remorse and what could only be described as mistaken compassion, extended loans to Zambia and other nations in similar situations to assist them deal with their deficits, despite the borrowing nations’ inability to repay.
By the early 1980s, the debt had grown so unsustainable that the West, through the World Bank and the International Monetary Fund, purchased third-world debt from the Arabs, not out of compassion, but to limit Arab power in the third world, notably in Africa.
To cut a long story short the UNIP regime failed to pay the debt and in 1986 broke off relations with both Benton Woods institutions causing severe hardship for Zambians which led to food riots in the cities and was a major, but not the only, catalyst to end Kaunda’s iron-fisted grip on the country.
When MMD came into office in 1991, they inherited this debt and a highly centralized economy. World Bank and IMF inspired Structural Adjustment Programs followed. Conditionalities for IMF/World Bank assistance included liberalization of an economy that had no capacity to compete with outside products forcing the closure of many industries and the retrenchments and redundancies that followed. The restructuring also involved the privatization of viable industries, shifting the means of production from the state to the private sector.
On the one hand, efforts were made, notably through the Catholic-led Jubilee 2000 coalition, to force debt fogginess or cancellation, while on the other hand, structural changes led to the completion of the Highly Indebted Poor Country (HIPC) initiative, allowing the country to be literary debt-free by 2005. That, in a nutshell, was the beginning and end of our first financial crisis. It is worth noting that it took upwards of 30 years to accrue and settle the problem, rather than repay, because the majority of the amount was forgiven.
As we face the second debt crisis, the above-mentioned questions will remain unanswered. What was the money spent on? Who is due what, and under what circumstances?
As we ponder these questions let us put into consideration that irresponsible borrowing leading to unsustainable debt is against article 98 of the constitution which addresses issues of intergenerational inequity.