Africa-Press – Zambia. Madam Speaker, 1. Let me begin by thanking you for according me this opportunity to brief this August House on the re-classification of Zambia as a low-income country from lower middle-income status by the World Bank.
In my address, I will begin by stating succinctly, how the World Bank classifies countries. Consequent sections of my address will be on the implications of the classifications, and then more importantly what we must do as a country to improve our standing among the nations.
2. The World Bank assigns the world’s economies to four income groups, namely low, lower-middle, upper-middle, and high income. This is something that occurs even in our country, where we have high class (commonly referred to as apamwabas), those in between and commonly referred to as the middle class, as well as those without significant means.
3. The World Bank undertakes these classifications every year, and update the classification on 1st July, based on the Gross National Income (GNI) per capita or per person, of the previous year.
By focusing on each citizen of a country, the method used by the World Bank provides information about the income levels of people in a country, and therefore, enables comparison among nations. I will not delve too much into the complexities of the calculation.
4. For the 2022 classification, which are based on performance in 2021, the World Bank used the following thresholds to classify countries:
a)Low income: Less than US $1,085 GNI per capita; b)Lower Middle Income: Between US $1,086 and US $4,255 GNI per capita; c)Upper Middle-Income: Between US $4,256 and US $13,205; and, d)High Income: Above US $13,205 GNI per capita.
5. Zambia had a GNI per capita income of US $1,040 in 2021, from US $1,190 in 2020. Despite positive growth in 2021, the economic challenges of the past years and the continued sharp depreciation of the Kwacha against the US dollar meant that we were less well-off.
6. Madam Speaker, Zambia was among the three countries in the world that was reclassified to a lower income group. (The others being Lebanon, from upper middle income to lower middle-income and Palau, from high income to upper middle income).
7. The re-classification of the country has occurred ten years after the country was upgraded to lower middle-income status in 2011, based on performance in 2010. This gives us an opportunity, therefore, to reflect on what could have gone wrong in the economic governance of this country.
Why we here, and what are the causes for this? 8. Prior to attaining lower middle-income status in 2011, real Gross Domestic Product (GDP) growth averaged 8.7 percent. The exchange rate moved but not substantially, from an average of K3.60 per United States dollar in 2006 to K4.8 per United States dollar in 2010.
Further, the inflation rate was in single digit band in four (4) out of the five year period, except at end December 2008 when it was recorded at 16.6 percent.
9. The problematic period is between 2017 and 2021, during which real GDP growth averaged 2.0 percent.
The average exchange rate of the Kwacha to the United States dollar was K9.55 in 2017, and rose to K19.91 in 2021. The inflation rate rose from 6.58 percent in December 2017 to 16.4 percent in December 2021.
10. Madam Speaker, I will not delve into what happened to other economic metrics over this period such as debt ratios, the fiscal deficit and so on, as though important are somewhat peripheral to the discussion at hand. The bottom line is that we have observed a deterioration in economic governance. What are the lessons, and implication of the re-classification?
11. We learn important lessons from the re-classification. Macroeconomic stability, including growing the economy should be upmost in our minds. We are in a global village, and our standing among the nations is determined by the actions that we take.
12. A second lesson is that we must focus on the bigger picture of growing our economy, and improving the livelihood of Zambians through a stable macroeconomic environment. Again, the world is watching.
13. Arising from the re-classification, there is no immediate implication on the lending category by the World Bank for the financial year 2023 which begins on 1st July, 2022.
For the purpose of lending, a country has to be above or below operational cut off point US$1255 for 3 consecutive years for the World Bank to change the lending category.
14. Given that Zambia’s GNI per capita is now US$1,040 which is below the operational cut off point for a second year in a row, Zambia is considered a blend country, meaning it can access both concessional and non-concessional financing.
15. Should Zambia’s GNI per capita for 2022 remain below the operational cut off point again, then Zambia will move from blend to International Development Association (IDA) terms, which are very concessional for the fiscal year 2024 that begins in July 2023.
In essence, if our income remains below operational cut off point for 3 consecutive years, this is a confirmation that a country’s credit worthiness has been eroded.
16. Accessing financing from the concessional window will imply cheaper interest rates for the country as the terms will be lower.
Further the classification may induce those lenders that provide grants and financing to low-income countries relook at their policies on the country and resume grant financing.
This may be more helpful for Zambia given the high indebtedness the country is undergoing and the policy to stop commercial borrowing. 17. On the negative side, the level of resources we can access for development will now be less as we cannot borrow non-concessional even if our debt crisis is resolved.
18. Another implication is that we must do more to attain the Vision 2030 as this action shows that we have gravitated away from the progress we ought to have achieved.
In the Vision, the desire of the Zambian people is poverty and inequality reduction, and improvements in their livelihoods. This is a non-partisan issue which we must all aspire towards.
What must we do? 19. The new Dawn administration started the economic transformation of the country upon assuming office in August 2021. The focus has been to stabilize the economy.
Thus far, the Government has managed to bring down the inflation rate, stabilize the exchange rate, and controlled domestic borrowing resulting in lower cost of funds.
We have also introduced free education, decentralized resources through the CDF and scaled up social sector spending. Recruitment of teachers is done (30, 496) and that of health personnel is close to fruition – successful applicants will be announced in the next few days.
20. Over the medium to long term, Government has drawn up the Eighth (8th) National Development Plan (8NDP), which we will implement to the hilt, so that we enhance and foster higher growth by focusing on the main sectors of agriculture, agro-processing, mining, manufacturing and tourism.
Further, we have embarked on a multi-pronged approach to improve the financial and economic governance of the country, which includes the following: a) Return to debt sustainability through debt restructuring;
b) Gradually and sustainably improve public finances through revenue enhancement and expenditure rationalization; c) Enhancing commitment controls to reduce wasteful expenditure; and, d) The Fight against corruption.
21. In the continued spirit of upscaling transparency, we have published the policies and measures that Government will undertake over the medium term in the 2023-2025 Medium Term Budget Plan (MTBP) or Green Paper. I ENCOURAGE HONOURABLE MEMBERS OF THIS HOUSE AND THEIR CONSTITUENTS TO STUDY THE DOCUMENT AND PROVIDE US WITH FEEDBACK.
22. I am confident that in 2023, we will have a better assessment by the World Bank and get back on the right track towards meeting the loud and clear aspirations of the Zambian people as contained in the Vision 2030.
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