Response to the Debt Restructuring Update by Minister of Finance Dr. Situmbeko Musokotwane in Parliament

The debt restructuring progress outlined by the Minister of Finance marks an important step toward addressing Zambia’s debt crisis. While this achievement reflects positive strides, it’s crucial to analyze the potential economic impacts both immediate and long-term to ensure citizens understand what lies ahead.

Positive Implications of the Debt Restructuring:
1. Improved Credit Ratings:
• Successfully restructuring 90% of Zambia’s debt sends a positive signal to global credit rating agencies. This could potentially improve Zambia’s credit score, lowering borrowing costs for future investments and attracting more foreign direct investment (FDI).

2. Enhanced Investor Confidence:
• By demonstrating fiscal responsibility and transparency through agreements like the Memorandum of Understanding (MoU) with bilateral creditors, Zambia may see renewed confidence from both domestic and international investors. This is crucial for stimulating economic growth.

3. Debt Service Relief:
• The concessions secured, such as the US$ 840 million reduction in Eurobond debt, offer some relief to Zambia’s strained budget. This provides the government with more fiscal space to allocate resources toward critical sectors like healthcare, education, and infrastructure.

4. Potential for Economic Growth:
• With reduced debt obligations, the government can focus on policies that stimulate productivity and job creation. If properly managed, this could improve the standard of living for Zambians.

Concerns and Potential Risks:
1. Long-Term Debt Obligations:
• While the restructuring reduces immediate financial strain, it’s important to understand the terms behind these agreements. Prolonged repayment periods or delayed interest obligations could burden future administrations, limiting fiscal flexibility.

2. Economic Growth Projections:
• The government’s optimistic projection of 6% average economic growth may be ambitious without concrete measures to drive productivity. Zambia’s economy still faces challenges in sectors like agriculture, mining, and manufacturing, which require structural reforms to achieve sustained growth.
3. Private Commercial Creditors:
• The unresolved negotiations with certain private commercial creditors present a risk. Failure to secure favorable terms from these entities may compromise Zambia’s debt relief efforts.
4. Exchange Rate Volatility:
• While restructuring reduces immediate pressure on debt payments, Zambia’s reliance on imports coupled with currency instability could offset some of the expected fiscal gains.
5. Rising Cost of Living:
• Citizens are still grappling with high inflation, expensive fuel prices, and increased costs of essential commodities. Without robust economic interventions, these challenges may persist despite improved debt conditions.

Key Recommendations for the Government:
• Transparency and Accountability: Continue publishing debt updates and ensuring citizens understand the implications of these agreements.
• Diversification of the Economy: The debt restructuring progress is a positive development, but without a strategic shift toward economic diversification, Zambia risks remaining vulnerable to external shocks and limited forex inflows. Given that Zambia owns minimal shares in its mining sector which is heavily dominated by foreign entities the country must focus on alternative sectors that can generate sustainable growth, create jobs, and improve forex reserves.
• Support for SMEs and Local Industries: Directing resources toward empowering small and medium enterprises (SMEs) can stimulate job creation and economic stability.
• Social Welfare Protection: While debt restructuring frees up fiscal space, prioritizing social programs that reduce poverty and improve healthcare access will ensure citizens benefit directly from these reforms.

Key Diversification Strategies for Zambia:
1. Strengthening Agriculture for Export Growth

• Agriculture has untapped potential to become Zambia’s leading forex earner. With fertile land,favorable climate conditions, and access to regional markets like COMESA and SADC, Zambia can expand its agricultural exports significantly.

• Key Focus Areas:
• Invest in large-scale commercial farming alongside support for smallholder farmers.
• Promote high-value crops such as avocados, macadamia nuts, coffee, soya beans, and cashew nuts for export.
• Strengthen agro-processing industries to produce finished goods rather than exporting raw produce.
• Invest in irrigation systems to mitigate drought risks and improve year-round farming.Example: Countries like Kenya have successfully grown their economy through horticulture exports. Zambia can replicate this by improving value chains and expanding export markets.

2. Developing the Manufacturing Sector
• Zambia’s reliance on imported goods drains forex reserves. Investing in manufacturing can reduce imports while promoting exports.

• Key Focus Areas:
• Incentivize local industries to produce goods such as fertilizers, textiles, pharmaceuticals, and building materials.
• Establish industrial parks and export processing zones to attract investors and encourage value addition.
• Encourage partnerships between foreign investors and local entrepreneurs to foster technology transfer and skills development.
Example: Ethiopia’s investment in industrial parks has attracted global brands and created thousands of jobs, boosting its forex earnings.
3. Expanding the Tourism Industry
• Zambia’s rich natural resources, including Victoria Falls, Lwitikila Falls, Chishimba Falls,Musonda Falls, national parks, and cultural heritage, offer immense potential for tourism.

• Key Focus Areas:
• Develop eco-tourism and promote Zambia as a prime safari destination.

• Improve infrastructure such as roads, airports, and accommodations to attract international visitors.
• Introduce aggressive marketing campaigns showcasing Zambia’s unique attractions.Example: Rwanda’s investment in mountain gorilla tourism has significantly boosted its economy, showcasing how strategic tourism can increase foreign exchange inflows.

4. Boosting Renewable Energy Investments
• With abundant sunshine and strong water resources, Zambia can emerge as a leader in
renewable energy production.

• Key Focus Areas:
• Invest in large-scale solar farms and hydroelectric projects to meet domestic needs and export surplus energy to neighboring countries.
• Develop partnerships with private investors to expand Zambia’s role in the Southern Africa Power Pool (SAPP).
Example: South Africa’s renewable energy programs have significantly boosted energy exports and improved energy security. Zambia can adopt a similar model.

5. Enhancing the Digital Economy and Technology Sector
• Digital transformation presents an opportunity to create jobs, improve service delivery, and attract global tech investments.
• Key Focus Areas:
• Support start-ups and tech hubs to foster innovation.
• Expand digital infrastructure to connect rural communities.
• Promote Zambia as a hub for tech outsourcing and business process services.
Example: Kenya’s ‘Silicon Savannah’ has attracted major global tech players, positioning the country as a leader in Africa’s digital economy.
6. Promoting Financial Services and Banking Innovation
• By improving financial services and digital banking systems, Zambia can attract more remittances from the diaspora and encourage investment.

• Key Focus Areas:
• Develop fintech solutions to improve financial inclusion.
• Encourage mobile money services to expand access to banking for rural populations.Example: Ghana’s growth in mobile money services has improved access to credit and savings,helping businesses thrive.

Why Diversification is Urgent for Zambia
• Mining Dependency Risk: Since the mining sector is dominated by foreign entities, Zambia’s forex earnings from copper exports are limited. Without ownership control, Zambia is at risk of volatile global copper prices.
• Job Creation: Agriculture, manufacturing, and tourism have the potential to create thousands of jobs, reducing unemployment and improving household incomes.
• Revenue Stability: By diversifying revenue sources, Zambia can build resilience against economic shocks, ensuring consistent growth even when copper prices fluctuate.

Conclusion:
While Zambia’s progress in restructuring its debt is commendable, the government must remain committed to responsible fiscal management, economic diversification, and citizen-focused policies. Debt restructuring alone is not a solution, it must be accompanied by strategic reforms that drive sustainable growth and improve the lives of ordinary Zambians.

By Alexander Vomo