Zambia's economic storm eases but poor still feel the pain
Yvonne Mwansa (R) and her daughter Mirriam Mwansa pose for a picture at their kiosk in Ng'ombe, Lusaka. October 21, 2022. Thomson Reuters Foundation/Zanji Sinkala
What’s the context?
Some fear an IMF bailout deal will mean austerity measures in a nation where about half the population lives on less than $2 a day
- President Hichilema's reforms help to stabilise economy
- Inflation falls back into single digits as currency firms
- Campaigners fear IMF loan conditions will hurt poor
By Zanji Sinkala
LUSAKA, Dec 21 (Thomson Reuters Foundation) - After a 15-month bad patch, business is finally on the up for Zambian car dealer Dingani Banda.
The 29-year-old, who imports used cars from Japan to sell in the capital, Lusaka, has seen his monthly sales jump by 50% over the past year, largely due to a strengthening of the country's kwacha currency.
Banda said that had been a godsend for him and other businesses in the southern African nation that rely on imported supplies, and had boosted sales.
"The fluctuating kwacha in the last few years was a nightmare, and so to be able to enjoy its stability and appreciation in recent months has been relieving," Banda told Context.
"We have had an increase in clients being able to afford purchasing vehicles now because of the appreciated value of the currency."
President Hakainde Hichilema, dubbed "calculator boy" for his background in finance, has been credited with ushering in such economic improvements since taking office in August 2021.
Hichilema has swiftly moved to renegotiate the country's defaulted debt, put a lid on brisk inflation - bucking the global trend - and signed a $1.3-billion three-year loan with the International Monetary Fund (IMF).
But while financial markets have celebrated such steps, many poor Zambians say they have yet to see the benefits, and some fear the IMF deal will mean austerity measures in a nation where about half of the population lives on less than $2 a day.
Tax justice and anti-poverty campaigners said the agreement had already led to the abrupt removal of fuel and electricity subsidies, leaving the poorest Zambians vulnerable to higher prices linked to the war in Ukraine.
"This programme is based on the traditional IMF austerity package – but delivered on steroids," said Nalucha Nganga Ziba, a social justice advocate and former head of the charity ActionAid Zambia.
"This is to be achieved by significant cuts in some crucial areas of spending and some increases in taxes that pass the burden onto the poor majority rather than onto the richest individuals and companies."
Government officials did not respond to a request for comment.
The IMF has said conditions such as the elimination of fuel subsidies and increasing tax revenue would be offset with higher spending on social protection.
Zambia, a major copper producer, has for years been beset with high inflation, soaring debt and allegations of corruption.
Economic losses caused by the coronavirus pandemic worsened the country's problems, and in 2020 it became the first African nation to default on its sovereign debt in the COVID-era.
Hichilema, a former accountant-turned-businessman, has instituted a series of fiscal and monetary measures which have been credited with turning around the ailing economy.
Not only has the kwacha gone from one of the world's worst performing currencies to one of the best, inflation has plummeted to 9.8% from 24.4% in August last year.
Besides the IMF loan accord, policies have included recruiting more than 40,000 teachers and health workers, removing export duties on corn, and cancelling more than $2 billion worth of projects financed by commercial loans.
"The IMF deal has brought credibility back to the government," said Ashu Sagar, president of the Zambia Association of Manufacturers.
"It will actually help the government to renegotiate with some of the creditors to get stability back into the economy."
But many Zambians say they are yet to see improvements.
At the entrance of Ng'ombe, one of Lusaka's busiest informal settlements, local street vendor Yvonne Mwansa sells everything from toiletries to vegetables at her kiosk.
"Things haven't changed and prices haven't fallen. Ordinary Zambians like me don't understand big concepts like debt. Our understanding of an improved economy is the decrease in prices of goods and services," she said.
Florence Mutemasaka, a domestic worker in Lusaka, said the impacts of the IMF deal had already began to take a toll.
"The cut on fuel subsidies is especially a problem because some of us use public transport and the buses keep increasing the fares due to the increase in fuel prices," she said.
"Groceries in stores are still expensive, so what is the benefit of this IMF deal? My appeal is that the government should stop borrowing completely. It puts us in more problems."
Other measures to be implemented include the removal of the reduced excise on petrol and diesel, the removal of agricultural subsidies, the reintroduction of import duties, and a rollback on VAT exemptions, which will remain only on basic foods.
To mitigate against compromising poverty reduction efforts, the IMF deal allows for a marginal increase in social protection spending and more staffing for health and education.
It will take some time for most Zambians to feel respite from the actions taken by the government, said Rueben Lifuka, vice chair for Transparency International.
"There should be net benefits afforded to the ordinary person, but this will only happen in the medium to long term," he said.
(Reporting by Zanji Sinkala; Editing by Nita Bhalla and Helen Popper)
- Wealth inequality
- Cost of living
- Economic inclusion