08/09/2022
IMF Deal: Cry, My Beloved Zambia
By Grieve Chelwa
The International Monetary Fund (IMF) yesterday published the conditions attached to the newly agreed programme with the Zambian government. The conditions are incredible, unbelievable, heartless and basically make for very sad reading. They are even more incredible than I predicted in my radio appearance on Hot FM last December. I spent this morning reading the IMF's document. Below, and typed up pretty quickly because of work pressures, I summarise some of the most concerning aspects of the "deal".
The centerpiece of the deal is that the IMF is targeting in their words, "a large, front-loaded, and sustained fiscal consolidation." Specifically, they want the fiscal deficit to decline from 6% of GDP in 2021 to a surplus of 3.2% of GDP by 2025. And this is largely to be achieved by drastic cuts in government spending over the period 2022 to 2025. Basically, the IMF wants our government to reduce expenditure in the billions of dollars between now and 2025. This, my friends, is the definition of austerity.
How is this reduction in the fiscal deficit going to be achieved? By reducing expenditure on the following:
1. Fuel subsidies are going to be fully eliminated by the end of this month (September 2022). What this means is that our government will no longer protect its people from the vagaries of swings in the international price of oil. What then, is the role of government if not to protect its people from shocks, of which oil price dynamics are some of the most consequential?
2. Electricity tariffs will have to increase (via subsidy removal) and the IMF wants the Zambian government to publish a plan for doing this by December 2022. As I have argued before on this blog, this is going to cause pain among our people.
3. The hugely successful Farmer Input Support Programme (FISP) will be "reformed" beginning farming season 2023/2024. "Reform" is IMF speak for drastic cuts. In this instance, the envisaged cuts are large between now and 2025. My heart bleeds for the hundreds of thousands of small-scale farmers who have largely made our country maize-secure over the last two decades. (Funny thing is that the IMF, in their document, are full of praise for our self-sufficiency in maize production and yet they want us to effectively kill the goose that's been laying our golden eggs!).
To achieve the fiscal consolidation described above, the IMF also has a plan for increasing revenues. And I imagine you are expecting that their plan is anchored on increases to corporate income taxes (especially on the mines). The answer is no. Their plan is largely anchored on the following, which will largely impact the poor and the middle class:
4. Value Added Tax (VAT): The IMF wants us to "broaden our VAT base" which essentially means limiting the number of goods that are VAT exempt. The VAT is one of the most regressive taxes in the world because it impacts the poor much more than the well-off. Because of this, governments often exempts many products from VAT to protect the poor. The IMF now wants us to do the reverse and do so in quite a drastic way. A table on revenue measures on page 12 shows that VAT is going to be the champion of revenue increases over the medium term -- much more so than corporate income taxes and mineral royalty taxes. …