We covered the Fund’s long history on the continent, Zambia’s own debt story, and the question that runs through the book: why African countries keep returning to Washington, decade after decade, for a treatment that never seems to cure. We also got into the African Centre for Monetary Studies, the institution African central banks built for themselves in 1978 and could not afford to keep — a story almost nobody knows, and one that tells you a great deal about why the alternatives never took root.

The full conversation runs just under an hour and is below.

If you are in Johannesburg or Lusaka this week, the book launches at The Forge on 6 August at 6pm and at the Lusaka Contemporary Art Centre on 8 August at 14:00hrs. It would be good to see you at either.

Earlier today news broke on international newswire services that the Zambian government had decided to shelve plans to extend the IMF’s Extended Credit Facility which has been in effect since October 2022. The news was subsequently confirmed by the minister of finance at a press briefing held about midday in Lusaka.

Zambia’s Extended Credit Facility (ECF) was supposed to last 3 years meaning that it should have expired last October. However, the government, as far back as last February, had indicated its intention to request a year’s extension beyond October and had, therefore, been in discussion with the IMF over the last two or so months. Today, in a move that caught many by surprise, the minister of finance announced that those plans had been suspended, at least for now.

Why the suspension? At today’s press briefing the minister of finance lauded praise on the IMF’s ECF arguing that it had met its objectives of restoring economic stability and, therefore, the government was looking towards engaging “the Fund on a successor framework” that would build on these achievements.

However, the likely reason why the government has announced the abrupt suspension is due to what Nobel prize winning economist William Nordhaus referred to as the Political Business Cycle. That is, the tendency for governments to suspend anti-poor policies when an election is looming. In other words, being in bed with the IMF in an election year can be fatal.

There’s now quite a mountain of evidence showing that the ECF, even though it might have restored some aspects of macroeconomic stability, has been nothing short of catastrophic for the social and economic lives of everyday Zambians. I have documented some of this evidence on this substack over the last 3 to 4 years as well as in a scholarly piece I co-authored earlier last year. For example, the cost of diesel and petrol have remained significantly high, even doubling at one point, largely due to the IMF programme. Consequently, high energy prices have translated into a historic cost of living crisis characterised by high food and transportation costs.

A chaotic agriculture policy in 2023, a result of the IMF’s mixed signals on agriculture subsidies, and an ‘export maize at all costs’ policy in the midst of a draught, encouraged by the IMF, resulted in a desperate shortage of food in 2024. Food prices, given that they are difficult to contain once they significantly increase (i.e., sticky downwards in economics speak), are yet to recover from this IMF-inspired policy disaster of 2023.

The same is also true for electricity supply. In addition to IMF-inspired increases in electricity tariffs, the country has suffered unprecedented power outages of, at times, up to 20 hours a day over much of the last 2 to 3 years. The absence of electricity at this scale has been devastating for Zambia’s urban poor many of whom eke out a meagre living in the informal sector running barber shops, hair dressers, grocery shops, restaurants, welding shops etc…where electric power is the most vital input.

The fundamental reason for the shortages in electricity is climate change-induced draught, but this situation has been made worse by a ‘profits over people’ policy, again encouraged by IMF neoliberal orthodoxy, whereby electricity exports have increased at a time when the country should have been doing the reverse. Data contained in the Bank of Zambia’s annual reports unsurprisingly shows that electricity became one of the country’s most important non-traditional exports during the time that the country has been facing historic power shortages.

On the other hand, the social and economic crisis wrought by the IMF’s ECF has been a godsend for the country’s politically connected elite who have made a pretty penny ‘solving’ the crisis whether it be importing emergency electric power or emergency food or emergency gasoline. Zambia’s giant foreign-owned mining sector has also had a field day over the life of the ECF from enjoying generous tax treatment and enjoying a privileged continuous supply of electricity at prices far below the commodity’s scarce value.

Given all this, the shock announcement by the Zambian government today should be seen as an admission on their part that dealing with the IMF is anti-poor policy. The minister of finance admitted this much in his statement today when he said the suspension would allow for “[the deliberate] transition towards a growth-focused agenda that accelerates investment, supports job creation, and expands the productive capacity of the Zambian economy.” In other words, IMF programmes are anti-growth, anti-investment and anti-jobs.

However, we should not be mistaken to think that the Zambian government’s suspension of the ECF is borne out of a principled position but out of a desperate need to win this year’s elections. Seen this way, the IMF will be back in town should the present government retain power after August’s elections.

For the past 26 years, the Jesuit Centre for Theological Reflection (JCTR) has provided Zambia with a vital tool for holding successive governments accountable for their promises of development and improved welfare––the Basic Needs and Nutrition Basket (BNNB). The monthly publication of the BNNB serves as a real-time measure of whether policy pronouncements translate into tangible benefits for the poorest citizens.

The BNNB, which was introduced in 1999, involves the collection of the cost of essential food and non-food items required for a family of five to maintain a decent standard of living in urban areas of Zambia. The BNNB reflects the cost of an "ideal" basket (what families should spend) rather than actual expenditures. Prices are collected at the end of each month. The prices are collected from multiple markets representing low, medium, and high-density areas in Lusaka and other urban centres such as Chipata, Choma, Kabwe, Kasama, Kitwe, Kitwe, Livingstone, Luanshya, Mazabuka and Solwezi, among others.

Zambian government officials, including President Hakainde Hichilema, have spoken glowingly of the many achievements of the government, pointing to rising GDP figures, the hiring of teachers and nurses, the expanded constituency development fund, the temporarily strengthened Kwacha (boosted in part by mid-year tax obligations and a weak dollar), and so on. However, behind these optimistic indicators lies a harsher reality: despite economic growth, ordinary Zambians continue to struggle under a cost of living crisis.

The data speaks clearly—while the economy expands, hardship deepens. The BNNB for Lusaka, the capital, has surged from K8,430 in 2021 to K11,400 in June 2025, representing an increase of 40.7% (see figure 1). For Kitwe and Solwezi, two cities located the heart of Zambia’s mining industry, the BNNB increased respectively by 37% and 60.6% over the same period. This increase exposes the stark disconnect between GDP growth and the lived experiences of the majority.

The sharp rise in the BNNB is consistent with official inflation numbers from the Zambia Statistics Agency. While 2022 saw inflation figures drop, compared to 2021 levels, Figure 2 reveals a concerning trend––food inflation has consistently outpaced general inflation, eroding purchasing power for essential household commodities as measured by the BNNB. This highlights the deeply rooted cost of living crisis for the average Zambian household.

The 2022 Labour Force Survey revealed that Zambia’s average monthly earnings1, which stood at K5,342, rose marginally to K5,369 in 2023—a mere 0.5% increase. Yet over the same period food inflation surged by 19.3% (see figure 2 above) and non-food inflation skyrocketed by 58.9%. (See figure 2 above.)

Meanwhile, official figures from the 2025 Budget Performance Report show GDP growth averaging 5.27% in 2023 and 3.92% in 2024. Why has this growth failed to improve affordability for ordinary Zambians? Part of the explanation lies in the policies implemented by the new dawn government. Poor policy execution in the agriculture sector, for example, helps explain why Zambia’s main staple has become prohibitively expensive for the average household.

As noted by Bernadette Mushinge and Grieve Chelwa, the government implemented a maize export policy at a time when “the country registered one of the biggest declines in maize production”, thus depleting the country’s reserves and pushing more Zambians into hunger. In addition, the removal of energy subsidies directly increased transport and food prices, disproportionately hurting low-income households. For example, between December 2021 and June 2025, fuel prices increased by 25%. Electricity tariffs have also increased by 34% between 2023 and 2025. Both are the result of IMF-imposed austerity conditions. The government has announced a “bumper harvest” for the most recent agricultural season (2024/2025), and it is too early to tell whether this will translate into some reduction in food prices and ultimately the cost of living.

One of the most important contributions of the BNNB is that it exposes the illusion of inclusive growth. The average household has not seen the supposed benefits that GDP growth should deliver to everyday Zambians. Whatever growth has occurred has only led to widening inequalities. As the Bank of Zambia Annual Report shows, personal income tax as a percentage of GDP grew from 3.7% in 2023 to 3.9% in 2024, representing a 5.4% increase. While during the same period corporate income tax as a percentage of GDP fell from 3.2% in 2023 to 3.1% in 2024, equivalent to a 3% decline in corporate tax contribution to GDP.

The BNNB isn’t just a statistic—it’s a survival benchmark. When food inflation stays high while wages stagnate, meals are rationed and the general quality of life falls. The data proves that macroeconomic "stability" hasn’t translated into relief for the poor.

The BNNB underscores the need to align minimum wages with the BNNB threshold (current wages can’t even cover half of the basic needs!). In addition, there is a need to relook our policies on subsidies and agriculture to ensure that the least in our society are protected from economic shocks. GDP growth has very little meaning if living costs constantly outpace earnings. As shown by the BNNB, Zambia’s economic growth is for the privileged few and not the majority.

Ntazana Siame Kaulule is a Zambian economist and lawyer. His broad research interests are in land policy, debt, and development in Africa.

I just finished reading an incredibly impressive and detailed biography of one of my heroes, the Chinese revolutionary and statesman Zhou Enlai. The biography is titled Zhou Enlai: A Life and is written by the Chinese historian Chen Jian. Running at 840 pages (including a 100 pages of endnotes), the book is expertly written and provides a detailed year-by-year account of Zhou’s life from the time of his birth in 1898 until his death in 1976.

After spending close to 30 years building the Chinese Communist Party (CCP) and leading the Chinese revolution alongside Mao Zedong and others, Zhou became the first Premier (Prime Minister) of the People’s Republic of China (PRC) in 1949, the year that the PRC was proclaimed. He held the position of Premier from 1949 until his death in 1976 representing over 50 years of uninterrupted service to the Chinese people (including the 30 years leading up to the proclamation of the PRC).

Zhou’s responsibilities as premier were dizzyingly wide-ranging. He was responsible for establishing and supervising the PRC’s sprawling bureaucracy and coordinating the many activities of the government and the CCP, which in a country with the geographic expanse and population of China was no small matter. Zhou was also at the center of coordinating China’s defence strategy.

If Chairman Mao was the philosopher king of the Chinese revolution, then Zhou Enlai was the one who implemented the chairman’s grand theoretical vision by reconciling different interests and overcoming reality’s binding constraints. It was painstaking work that only a patient bricklayer of Zhou’s temperament could do.

Of all of Zhou’s responsibilities, the ones that are enduring were his roles as de facto Minister of the Economy and Minister of Foreign Affairs. In the former role, Zhou authored many of China’s initial development plans that centered agriculture and industry. In the initial years of the PRC, Zhou acted as a wise and trusted intermediary between Mao and Joseph Stalin helping to secure crucial economic and technical assistance from the Soviet Union. At an important speech of the Third National People’s Congress in 1964, Zhou introduced his idea of the Four Modernisations and asserted that “in not too long a historical period, China would become an [economic powerhouse] with modern agriculture, modern industry, modern national defence, and modern science and technology” (page 520). 11 years later in 1975, the last year of his life, Zhou was even more definite when he declared, at the Fourth National People’s Congress, that “China would realize four modernizations in industry, agriculture, national defence, and science and technology by the end of the twentieth century” (page 681). How prescient he was!

Whatever his achievements on the economic front, it was on the international stage where his star shone brightly. In collaboration with India’s Jawaharlal Nehru, Zhou introduced in 1954 the “Five Principles of Peaceful Co-existence”, including the emphasis on mutual non-interference, that still guide the foreign relations of China today. In 1955, Zhou attended the landmark Bandung Conference where he delivered a memorable speech dispelling rumours of “red imperialism” and called on the people of Asia and Africa to join hands in fighting actual colonialism and imperialism. Zhou was decisive in providing strategic advice and facilitating military aid to Ho Chi Minh and the Vietnamese people in their historic defeat of the French and the Americans. In the early 70s, he masterfully handled the delicate negotiations that ultimately led to rapprochement between China and the US. Henry Kissinger, who had the misfortune of going toe to toe with Zhou in these negotiations, described Zhou as “one of the two or three most impressive men [he had] ever met” (page 635).

In 1964, Zhou undertook a friendship mission to Africa visiting 10 countries including Egypt, Morocco, Algeria, Mali, Guinea and Ethiopia among other countries. However, it was an incident leading up to his visit to Ghana that revealed Zhou’s fraternal feelings towards the people of Africa. Just before departing for Ghana, Zhou

suddenly learned that Ghana’s president, Kwame Nkrumah, had almost been assassinated in a failed coup. The security situation in Ghana was unclear, and all of Zhou’s associates believed that he should cancel the visit. However, Zhou refused to abandon the trip when the host [was] in temporary difficulty, not only deciding to go ahead with the visit to Ghana but also offering to meet with Nkrumah at his residence at Osu Castle. (page 501)

While in Ghana, Zhou announced eight principles that would guide China’s economic aid to other countries:

to provide the aid on the principle of equality and mutual benefit, never regarding such aid as unilateral alms; to strictly respect the sovereignty of the recipient countries, never attaching any conditions or asking for any privileges; to provide aid in the form of interest-free or low-interest loans and to extend loan periods in order to lighten the burden on the recipient countries; not to make the recipient countries dependent on China but to help them achieve self-reliance; to help the recipient countries build projects that require less investment but yield quicker results; to provide the highest-quality equipment and materials, and to replace the equipment and materials if they are not up to the agreed specifications and quality; to see to it that the personnel of the recipient country fully master the technology provided by China; and to ensure that the experts dispatched by China have the same standard of living as the experts of the recipient country. (page 502)

These eight principles continue to guide China’s foreign aid policies today.

Zhou was the glue that held China together during the tumultuous years of the Great Leap Forward and the Cultural Revolution. He brokered the return of Deng Xiaoping to Beijing after Deng’s purging during the Cultural Revolution. In the final year of Zhou’s life when he was practically bedridden, Deng often visited him and the two spent hours talking. Zhou likely shared the secrets of Chinese statecraft with Deng, a tutelage that shaped Deng’s transformative leadership of China.

One cannot put a price on the slow, steady and pragmatic leadership of the type that Zhou Enlai exhibited over the course of his long service to China and to humanity. This is precisely the kind of leadership that Africa is in desperate need of today.

Yesterday, US Treasury Secretary Scott Bessent delivered an interesting speech in Washington at the Institute of International Finance. The speech was delivered to coincide with the annual IMF and World Bank Spring Meetings taking place this week in Washington.

The speech was highly anticipated because there has been chatter about the future of the two Bretton Woods Institutions in the wake of the Trump Shock. That shock has already delivered the unexpected shutdown of U.S.A.I.D and the withdrawal of the US from the World Health Organization (WHO). Many have wondered whether a withdrawal from the IMF and World Bank was also on the cards.

The uncertainty was largely settled with yesterday’s address where Bessent was unequivocal in stating: “Far from stepping back, America […] seeks to expand U.S. leadership in international institutions like the IMF and World Bank.” In other words, the US ain’t going nowhere!

Bessent’s renewed commitment to the IMF (“the Fund”) and World Bank (“the Bank”) does not come as a surprise to me. In the last couple of weeks, I have heard pontifications from eminent social scientists (mostly from the global North) predicting a US withdrawal with certainty. These analyses have struck me as naive.

In my estimation, there are very few, if at all any, multilateral institutions that have delivered a “return on investment” for the US like the Fund and the Bank. This is why Bessent yesterday reaffirmed his country’s commitment to the two institutions.

Unlike other multilateral organizations, the US, on its own, has effective veto power when it comes to the most consequential decisions of the World Bank and the IMF. No other country has this power. And in no other multilateral setting does the US have this singular power. Not even in the UN’s Security Council where the US has to contend with the veto powers of the other four permanent members.

Subscribe now

Unsurprisingly, the US has used its outsized power in the Fund and the Bank to much success in “winning friends and influencing people” across the world. In other words, the World Bank and IMF have been effective and efficient tools of US foreign and economic policy. This is why Harry Dexter White of the US Treasury fought so hard at the 1944 Bretton Woods Conference to have the two institutions headquartered in Washington. This is why Scott Bessent yesterday renewed his country’s vows to the Fund and the Bank.

Bessent’s address was not just a renewal of vows. He wants to see the Fund and the Bank returning to their original mission of advancing US interests at the expense of the rest. That is, as the foreign economic policy arm of “America First”. Anything short of this is, according to him, “mission creep”.

Bessent wants the IMF do a lot more to discipline the US’s arch economic rival, China. His speech, ostensibly about reforming the Fund and the Bank, mentions China at least 10 times and he doesn’t mince his marching orders: “the IMF needs to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades.”

Earlier on in his speech Bessent is very clear about the spectre of China from the vantage point of the US:

China, in particular, is in need of a rebalancing. Recent data shows the Chinese economy tilting even further away from consumption toward manufacturing. China’s economic system, with growth driven by manufacturing exports, will continue to create even more serious imbalances with its trading partners if the status quo is allowed to continue.

China’s current economic model is built on exporting its way out of its economic troubles. It’s an unsustainable model that is not only harming China but the entire world.

China needs to change. The country knows it needs to change. Everyone knows it needs to change. And we want to help it change—because we need rebalancing too.

China can start by moving its economy away from export overcapacity, and toward supporting its own consumers and domestic demand. Such a shift would help with the global rebalancing that the world desperately needs.

Whereas Bessent’s instructions to the Bank are slightly less US-centric and sensible in some cases (eg, emphasising the need to facilitate large scale energy access in developing countries), he also sees the Bank as vital in his anti-China strategy:

Going forward, the Bank must set firm graduation timelines for countries that have long since met the graduation criteria. Treating China—the second-largest economy in the world—as a “developing country” is absurd.

While it has been at the expense of many Western markets, China’s rise has been rapid and impressive. But if China wants to play a role in the global economy commensurate with its actual importance, then the country needs to graduate up.

In conclusion, Bessent’s address was the clearest and most cogent public articulation, at least in recent times and by a high ranking US official, of the raison d'être of the IMF and World Bank. Previous US administrations have purposefully hidden the original logic of the two institutions in doublespeak. I hope that the scales have now fallen from the eyes of our policy elites in Africa.

The tariff wars of the last couple of weeks have been stunning to watch from Africa’s vantage point. It has been interesting to see tariffs, counter-tariffs and counter-counter-tariffs used as instruments of economic and geopolitical policy. This ability to use trade policy as a tool of statecraft is one African countries have been unable to wield largely because, unlike the rest, Africa takes seriously its membership to the World Trade Organization (WTO). And yet the WTO has been a disaster for the continent.

Headquartered in Switzerland, the WTO came into existence in January of 1995 with the ostensible goal of levelling the playing field for trade in goods, services and intellectual property. Effectively, though, the WTO, like its sister organizations the IMF and World Bank, has served the interests of rich and powerful nations at the expense of poorer and weaker ones. In the specific case of Africa, this has manifested itself in at least three ways: tariff policy, agricultural policy and imbalances in the WTO’s Dispute Settlement System.

Tariffs

A tariff is simply a tax on imports. With tariffs foreign producers face difficulties in accessing domestic markets. For this reason they have been used historically by governments throughout the ages as a tool for the protection of local producers against unfair competition from abroad. That is, as a tool of industrial policy. Nowhere else has the WTO effectively played its role as an underminer-in-chief of Africa’s development aspirations than in policies related to tariffs.

With the establishment of the WTO in 1995, African governments committed themselves to the reduction of tariff rates across the board and especially on manufactured goods. Figure 1 shows trends in the average tariff rates imposed on manufactured goods by African governments between 1990 and 2022.1 The figure shows three trend lines: average tariffs on manufactured imports from the world as a whole (blue line), average tariffs on manufactured imports from the US (red line) and average tariffs on manufactured imports from China (green line).

What is clear from Figure 1 is that average tariffs on manufactured imports into Africa have, in general, declined since the establishment of WTO in 1995. In the 4 to 5 years prior to WTO, manufactured imports from the world into Africa attracted tariff rates in the double digits that averaged about 19%. After the establishment of WTO, average tariffs declined precipitously into single digits and have stayed that way since.

One of the biggest beneficiaries of the establishment of WTO vis-à-vis Africa has been the US. As Figure 1 shows, the average tariff imposed on US manufactured imports into Africa declined from double digits to very low single digits post-WTO and stayed that way since. In actual fact, the tariff rate imposed on US manufactures has throughout this period remained lower than the world average and even lower than rates charged on Chinese imports.

Figure 1: Average Tariff Rates on manufactured imports into Africa, 1990 to 2022

Naturally, this naked exposure of Africa’s nascent manufacturers to unfair global competition has had a devastating impact on the continent’s ability to industrialize. Figure 2 shows trends in the share of manufacturing value-added in GDP (a measure of industrialization) for the African continent and for the world as whole from 1990 to 2022. As is clear from the figure, the share of manufacturing value-added in African GDP was rising prior to the establishment of the WTO and declined thereafter. Further, the gap between Africa’s rate of industrialization and that of the rest of the world has grown wider post the establishment of the WTO.2 As history has taught us time and time again, industrialization is the only engine of development.

Figure 2: Manufacturing valued-added in GDP for Africa and the world, 1990 to 2022

You might ask: the majority of countries/regions in the world are subject to the WTO and, therefore, all were subject to declines in tariffs so why does this matter more for Africa than elsewhere? It matters because different regions were at different stages of industrialization/development at the onset of the WTO with Africa being the least industrialized region (read here, here and here to understand why Africa is the least industrialized region in the world). Exposing Africa to the same tariff shock as everywhere else effectively meant trapping the continent in a perpetual state of underdevelopment vis-à-vis the rest of the world. Alexander Hamilton, who was the first US Treasury Secretary in the late 18th Century famously argued for tariffs to protect America’s then infant industries against more sophisticated competition from Britain.

A second question you might ask is: why doesn’t Africa just ignore the WTO and levy higher tariffs like the US is doing right now? Well, unlike many other parts of the world, Africa’s economic policies are effectively designed, implemented and monitored by that other pillar of neoliberalism, and the WTO’s close relative, the International Monetary Fund.

Agricultural Policy

There are additional ways in which the WTO has trapped Africa in poverty. For example, the Agreement on Agriculture (AoA) that was promulgated as part of the establishment of the WTO in 1995 was meant to level the playing field for agricultural livelihoods and food security across the world via the reduction of “market distorting” subsidies. However, the the AoA was effectively drafted by the US and Europe and unsurprisingly both have continued subsidizing their often wealthy farmers at the expense of agricultural development in Africa and other parts of the global South.

Dispute Settlement System

Finally, you’d think that the African continent might make use of the WTO’s Dispute Settlement System (DSS) to, for example, challenge the violation of the AoA by the US and Europe. In principle, the DSS is supposed to provide equal access to justice for all its members. In practise, however, power and resource imbalances have meant that the rich and powerful have had more access to the DSS and, therefore, disciplined the rest. Since 1994, only two African countries have initiated disputes under the DSS. Over the same period, the US and the European Union have used the DSS over four hundred times between the two of them.

Whereas others have continued to use trade policy as a tool of industrial, economic and geopolitical policy in blatant violation of the WTO’s founding agreements, Africa has been a star pupil of the WTO studiously implementing its protocols. What have we gotten in return? Well, the appointment of our very own Ngozi Okonjo-Iweala as the first African boss of the WTO. Something to celebrate, I guess. Never mind her checkered history.

One of Thandika Mkandawire’s most enduring arguments was that the external environment (what he called the Global Conjuncture or External Conjuncture) explained much of Africa’s economic fortunes. He convincingly made this argument in a series of papers and books but most memorably in his 2001 seminal essay in the Cambridge Journal of Economics where he wrote:

[Most analysts underestimate] the enormous importance to African economies of external conjuncture…African economies generally do well when the global conjuncture is good and poorly when it is bad. This is a lesson that the Bretton Woods Institutions [IMF and World Bank] have gradually learnt as their own stabilisation and adjustment programmes have on several occasions been unscrambled by external factors.

Mkandawire’s “External Conjuncture Thesis” is the inspiration behind a new study on Zambia’s debt crisis published by my co-authors and I in the journal Development (unfortunately behind a paywall).

Anyone who has followed debates on the African debt crisis has heard multiple versions of the story that sees the crisis as self-inflicted. In other words, Africa’s debt problems are internally generated and are due to “financial mismanagement”, “economic mismanagement”, “corruption”, “wide-scale incompetence” and so on. And due to the general “anti-Africa bias” of mainstream economics, these stories find credence in the influential academic literature published on the topic.

Our paper makes the case for global conjuncture by taking a long-term view of Zambia’s history with external debt. What we find, which is unsurprising when one thinks about it, is that changes in the international market for copper, a metal constituting 70% of the country’s foreign exchange (forex) earnings and a quarter of its GDP, predominantly drive debt dynamics in Zambia.

The two smoking gun charts from our paper are reproduced below. The first chart, Fig 1, shows that Zambia’s copper production has always been a supply-side response to copper prices set “internationally” at the London Metal Exchange (LME). In other words, whether Zambia produces a lot of copper or a little of it is largely out of its hands. And given that copper generates three-quarters of the country’s forex earnings, developments in London inordinately impact Zambia’s economy and its ability to manage its debt profile.

This latter point is also evident in Fig 2 which shows the historical relationship between Zambia’s external debt and export earnings from copper. Periods of high export earnings (i.e., high copper prices), circa 1960 to 1970 and circa 2002 to 2014, have been followed by debt crises as the market for copper experiences a reversal of fortunes.

Fig 1: Zambia’s historical relationship between copper production and copper prices

Fig 2: Copper export earnings, external debt and debt crisis in Zambia

In addition to copper, our paper also looks at the role of two additional external forces that have historically influenced debt cycles in Zambia: the IMF’s insistence on fiscal austerity and US Monetary Policy. On the former, we argue that the IMF’s insistence on “cash budgeting” in the 1990s sowed the seeds for the rapid accumulation of debt that came later and is visible in Fig 2. Cash budgeting forced the Zambian government to limit its expenditure to the amount of cash available in its accounts, which amounted to very little given that the economy was in recession in the 1990s. Cash budgeting effectively prevented the Zambian government from building infrastructure (schools, hospitals, roads, water and electricity, etc…) at a time of a rapidly growing population (you need to run budget deficits to build large-scale and meaningful infrastructure). So when the IMF lifted the cash-budget constraint in the 2000s, the Zambian government understandably tried to plug its twenty year infrastructure backlog by borrowing internationally. This point also makes clear the often tragic implications of the IMF’s outsized role in determining domestic policy in Africa.

On US Monetary Policy, our paper argues that periods of low interest rates in the US, as happened after the Financial Crisis, often lead to the dangerous build-up of debt in Zambia (and Africa more generally). Conversely, a sharp rise in US interest rates, as happened during the Volcker Shock of the late 70s and early 80s, can trigger a debt crisis as poor countries scramble to find the forex to service their external debt obligations.

Our paper doesn’t imply that internal factors bear no blame (in a forthcoming paper we highlight shortcomings in the debt oversight mechanism in Zambia). Rather our paper shows à la Mkandawire that, even with the best laid plans, poor countries can suffer debt crises because of the confluence of global forces beyond their control.

My good friend Ken Opalo has an excellent substack post on the fierce urgency of ending aid dependency in Africa. Ken’s post is inspired by the negative shocks to foreign aid as a result of the “Trump aid cuts” and budget re-prioritizations currently underway in Europe. As Ken is careful to point out, the recent shocks, as significant as they are, are part of a general downward trend, a pattern that has been evident for a number of years. Back in 2018, I wrote a post about the declining significance of foreign aid to Zambia’s overall budget. As I mentioned in that post, and as Ken points out, even though aid’s total significance (as a proportion) has been declining, it has continued to be a non-trivial source of financing for health and education in many African countries. Seen this way, the negative shocks to aid will be catastrophic for health and education systems, at least, over the short to medium term.

Towards the end of his post, Ken sees growth as key to ending aid dependency. He writes: “the first and most important step towards ending aid dependency must be laser-focused attention to [economic] growth. There’s simply no other way to create the fiscal space to absorb aid cuts in the long run…bigger economies will mean more money available to spend on essential public goods and services and less reliance on aid.” I agree on the necessity of growth. Like him I see significant growth as something that can only realistically be achieved over the medium to long run. Meaningful growth is very difficult to achieve overnight.

So what can be done in the short-run? Ken, in passing, hints at a possible short-run solution that is worth emphasizing — the need for African countries to collect more taxes than they currently do.

One of the striking facts about African countries are the low levels of tax collection relative to their economies and relative to other parts of the world. Figure 1 below, taken from the 2024 Revenue Statistics in Africa report, shows the scale of the problem. The figure shows tax-to-GDP ratios for the African continent and other regions of the world. The tax-to-GDP ratio gives us a good idea of how well a country is doing in collecting taxes when compared with other countries.

Figure 1: Average tax-to-GDP ratios for Africa, Asia Pacific, LAC and OECD, 2000 to 2022

What is clear from the figure is that the African continent consistently underperforms other regions when it comes to tax collection. For example, for 2022, the latest year with comparable data, the average tax-to-GDP ratio in Africa was 16% whereas the average for the OECD countries (a group of developed countries) was 34%. This means that the OECD countries collect taxes at twice the rate of African countries! Asia-Pacific countries and Latin America and the Caribbean countries (LAC) all have average tax collection rates higher than the African average.

Consider this back-of-the-envelope calculation: Increasing the tax-to-GDP ratio in Africa from its current rate of 16% to the Asia-Pacific average of 19% or the LAC average of 22% would, all else equal, yield average additional tax revenues of between $80 billion and $160 billion. These numbers are higher than, for example, the total official development assistance the African continent received in 2022! And increasing the collection rate to that of the average for the OECD countries would, all else equal, double tax revenues on the African continent.

So why is Africa’s tax collection rate so low? One hypothesis has it that the tax collection rate is negatively influenced by aid (or in social science speak, the collection rate is endogenous to aid). The presence of aid might blunt some of the incentives for governments to collect more in taxes. Logically appealing as this hypothesis is, the empirical evidence in its support is rather weak (see here and here, for example).

More fundamentally, I believe that tax collection rates are lower in Africa because our economies are generally dominated by extractive sectors that are, in turn, dominated by multinational corporations (MNCs). If there is one thing we know about MNCs it is that they will do everything in their power to reduce their tax liabilities including lobbying for lower taxes, hiring armies of tax consultants, capturing local policy elites, undermining multilateral initiatives at cross border cooperation, etc…For a classic example of the last point, consider the tragic and short-lived history of the United Nations Center on Transnational Corporations (UNCTC). The UNCTC was established in 1975 to act as a global watchman of MNCs especially their activities in developing countries. After making good progress in discharging its duties, the UNCTC was abruptly shutdown in 1992 largely at the behest of developed country MNCs (this book gives a very good account of its short history).

On the capture of local policy elites, consider the bizarre policy of perennially granting tax incentives to MNCs when the evidence shows that foreign direct investment (FDI), especially into the extractives sector, rarely, if at all, responds to such incentives.

Small increments in the tax collection rate, by, for example eliminating tax incentives and other obvious tax loopholes, can immediately yield significant dividends in tax revenues (as per the above back-of-the-envelope calculation).

In the long-run we need economic growth, but in the short-run Africa could cushion some, if not all, of the aid shock by simply collecting taxes at the same rate as peer regions in the world.

Below is a text of a short speech I gave at a meeting of academics, foundations and civil society in New York City in September 2024. We were convened to think through some potential solutions for the sovereign debt crisis engulfing much of Africa and the Global South. I was going through my files this week and realised the speech might make for an interesting post. So here goes.

Good Afternoon! My name is Grieve Chelwa. I am an associate professor of Political Economy at the Africa Institute. Some of my most recent work is dedicated to thinking about the political economy of the African debt crisis. I’d like to share some thoughts on an outline for a “solution” to the current sovereign debt crisis especially as that crisis is now enveloping many countries in my home continent of Africa. The solution I will outline is inspired by closely observing the trajectory of my country Zambia over the last couple of years as it has struggled to speedily resolve its debt on terms that do not jeopardize its long-term aspirations for emancipatory development.

As you all know, Zambia applied to the G20’s Common Framework for Debt Treatment in April of 2021. And It is only in April of 2024, a full three years later, that some type of deal was agreed to between Zambia and its creditors (and as I have argued elsewhere, the terms of the deal are so skewed against Zambia in such a way that the country might very well find itself in another crisis around 2032 or thereabouts).

In the three years that it took to arrive at this “deal”, the country’s macroeconomy has been in a state of paralysis typified by the collapse of the country’s currency, the Zambian Kwacha, which, combined with IMF’s austerity measures, has resulted in a historic cost of living crisis whose burden has fallen on the poor.

Why did take it so long for Zambia and its creditors to agree on some type of debt restructuring plan?

Well, one theory has it that a multiplicity of creditors and their varying interests made it difficult to speedily agree on common terms.

A second theory, somewhat related to the first, has it that Zambia got caught up in a geopolitical tussle between China and the West.

A third theory, which I believe is just as fundamental and has been ignored, is that Zambia’s debts, on their own, were too small for its creditors to be bothered to hurry towards a solution. In other words, we have here the following classic problem of finance:

• if I owe the bank $10,000 and I can’t pay, then it’s my problem.

• But if I owe the bank $100 million and I can’t pay, then it’s the bank’s problem.

And you best believe that in the latter scenario, the bank will be chasing after me rather than the other way round!

So this, in a nutshell, is the thinking behind a solution I’d like to put on the table for further consideration. The possibility of debtor countries coordinating their efforts in a way that rebalances power away from creditors.

African countries collectively owe somewhere between half-a-trillion to just under a trillion dollars in external debt, a non-trivial chunk of global debt markets. On the other hand, the amount of debt that Zambia wanted to restructure was somewhere between $6 to $8 billion, a rounding error for global debt markets. So if African countries coordinated their efforts through a type of debtors’ club or borrowers’ club, I believe that creditors would have little choice but to quickly arrive at a solution and to do so on terms that weren’t discriminatory against debtors. After all, a trillion dollars are at stake!

So I see the problem of the slow resolution of debt as fundamentally one of power imbalances between creditors on the one hand and Southern debtor countries on the other. In the market for sovereign debt, power overwhelmingly resides with creditors at the expense of countries in the Global South.

This idea for such a Lusaka Club or Accra Club or Addis Ababa Club of borrowers, to rival the likes of the Paris Club or London Club of creditors, is not new or even original to me. Thomas Sankara proposed such a “united front against debt” in his famous final speech at the Organization of African Unity in 1987 (before he was taken from us later that year).

Hannah Ryder of Development Re-imagined has for a while been calling for the establishment of such a club. The newly launched Organization for Southern Cooperation (OSC), based out of Addis Ababa, has called for the establishment of a Common Leveraging Union of Borrowers (whose acronym reads CLUB) towards this purpose.

So the idea is gaining some momentum but there is still a lot of work that needs to happen. And here I am thinking about three levels of work that need to take place.

First is at the level of conceptual clarity. That is, building firmer theoretical scaffolding for the existence of such a club. And here we seek answers to questions such as: Can it work? How might it work? When might it fall apart?

Second is at the level of technical and administrative clarity. Is the club to be adhoc and activated in times of crisis? Or Is it to be permanent? If so, where might it be housed and how might it be governed? At the Africa Union? And if we are to think about a club for the Global South as a whole, where and how might it be operationalized?

A third level, and one in which I have the least expertise, is in thinking about a theory of change. How do we get social movements sufficiently behind such an idea so that our governments can move towards establishment (after figuring out levels 1 and 2 above)? Perhaps working with civil society and social movements, we can identify an initial set of highly indebted countries that can pilot the idea and serve as proof-of-concept?

In conclusion, I want to say that such a club does not necessarily need to only focus on the thankless task of renegotiating debt in times of crisis. It can also evolve into a lending club within, for example the African region, especially when one thinks about the absence of a genuine Pan African bank that coordinates, in a just and humane way, the redeployment of funds from surplus countries to deficit countries.

In any case, these are some thoughts that I hope inspire some vigorous brainstorming in the direction of solving a crisis that has hamstrung our people’s struggles for total emancipation.

Thank you!

A couple of weeks ago I attended the 2024 World Bank and IMF Spring Meetings which take place every year in Washington, DC at the beginning of spring season in the northern hemisphere. The meetings bring together, inter alia, finance ministers and central bank governors to, according to the IMF, “discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.” That’s the ostensible reason.

The purpose, however, as I observed is to recommit the world’s policymakers, especially those from the less prosperous global South, to maintaining the current global economic order. An order that ensures that the global south, and in particular Africa, is at the bottom and the global north (the US and Western Europe) are at the top.

In a way these meetings are akin to a religious pilgrimage where adherents renew their commitment to a gospel. In the case of the IMF and World Bank meetings that gospel is a straightjacketing of policy imagination.

Take the tweet below as an example of this. The tweet is taken from the IMF’s X account and the image is from a blog post written on 10th April. 10th April was a few days before the start of the Spring Meetings and, therefore, the policy implications of this image must have been widely proselytized at the meetings.

The message of this tweet, and the accompanying blog post, is that countries should not use industrial policy to attain economic development. Rather, they should use “fiscal policies that support innovation and technology diffusion...” Basically this is vague IMF speak calling for the subsidization of the private/corporate sector.

The issue here is that as a matter of the historical record, those countries that are now developed have used and continue to use industrial policy as a tool to stimulate industrial production and thereby attain and maintain their level of economic development. Industrial policy is the use of the full fire power of the state’s balance sheet to directly stimulate industrial production whether it be establishing new industries/sectors or taking non-trivial equity positions in those industries/sectors seen as strategic for a country’s economic development.

One of the most cogent articulations of the power of industrial policy has come from South Korean economist Ha-Joon Chang who has documented the role of industrial policy in the rise of the West (and even of his native South Korea).

Whatever the IMF may say, rich countries have always conducted industrial policy because they know that it works. And the IMF’s messaging, such as the one in the tweet above, is framed as though it were directed at all countries when in actual fact its target are poor countries. And for some reason (perhaps hypnosis?) our policymakers, especially in Africa, rush back home to implement the kind of policies that rich countries wouldn’t be caught dead implementing.

By Grieve Chelwa

(I should have written this up last week but was delayed owing to travel to Accra, Ghana for a conference on Debt in Africa, where Zambia was top on the agenda.)

Last week Monday an announcement was made that the Zambian government had reached an agreement with holders of its Eurobonds to restructure some USD3 billion of debt. This deal, referred to as “definitive and conclusive” by a representative of the bondholders, comes off the back of a number of false starts. Zambians have now grown accustomed to the tentative nature of such announcements. Last June a big announcement was made at a summit in Paris that Zambia had reached a deal with its official creditors, news which was followed in October with another announcement that a similar deal had been arrived at with private creditors. And then November brought news that negotiations had collapsed due to a standoff between official and private creditors. This is why Zambians have welcomed last week Monday’s announcement with bated breath.

So what’s in the latest deal and what does it mean for Zambia?

Basically the new deal requires the issuing of two new bonds to replace the three bonds collectively worth USD3 billion that were originally due in 2022, 2024 and 2025. One of the new bonds (called Bond A) is worth USD1.7 billion and will be paid off between now and 2033 (i.e., over 9 years).

The second bond (called Bond B) is worth USD1.35 billion and is more interesting in how it is structured. This bond will either be paid off over a narrow two-year period much much much later (between 2051 and 2053) or a narrow two-year period relatively soon (between 2032 and 2035). Whether Bond B is paid-off later or sooner will depend on how well the Zambian economy performs between 2026 and 2028. Should the economy improve in the period 2026 to 2028 (called the trigger period) then Bond B will fall due earlier and create a level of debt distress in 8 years time given that its interest payments will coincide with those of Bond A. For example, it is likely that debt service payments on the Eurobonds alone in 2032 and 2033 could be as high as USD700 million should Bond B fall due earlier! And it is worth remembering that Eurobond debt constitutes only a part of total debt and official creditors have also structured a similar deal (with similar triggers) which might add on to this aspect of debt distress in the early 2030s. So it is possible that debt restructuring becomes self-defeating in the sense that it improves economic performance only for this performance to trigger another debt crisis that subsequently slows down economic performance and takes us back to square one.

Will we ever win?

Grieve Chelwa is Associate Professor of Political Economy at The Africa Institute and non-resident Senior Fellow at Tricontinental: Institute for Social Research.

By Bernadette Mwansa Mushinge and Grieve Chelwa

This past Thursday, president Hakainde Hichilema addressed the nation and declared a National Disaster in light of a prolonged dry spell that will affect this year’s agriculture output, especially that of maize which is Zambia’s staple food. In his address, the president appealed for help “calling upon [Zambia’s] partners, local and international, to avail food and other support that they may have, in order to provide the needed relief.” This is the first time in a long time that the country has declared a national disaster related to food leaving many to wonder what might have gone wrong.

To be sure, president Hichilema is correct in his assertion that the El Niño-induced dry spell will greatly affect this year’s maize production. But where he is wrong is in asserting that the dry spell alone explains the hunger crisis that the country will face this year. As we show below, the looming hunger crisis, which sparked last Thursday’s desperate plea for help, was caused by policy failure on the part of the Zambian government whose chief executive is Hichilema himself.

The story of Zambia’s maize production over the last 20 years or so has been nothing short of a miracle. Between 2001 and 2021, the country more than tripled its maize output. According to data from Zambia’s Ministry of Agriculture as reported by FAOSTAT, total maize production in 2001 stood at just under 1 million metric tonnes (MT). By 2021, that number had grown to 3.62 million MT making that year’s output the biggest in the country’s history. As is always the case, miracles of this scale (just like disasters) have much to do with government policy. In 2002, the Zambian government, then under the leadership of Levy Mwanawasa, introduced the Farm Input Support Programme (FISP) that was to provide large-scale subsidized farm inputs mainly to peasant farmers. It is FISP that explains Zambia’s maize miracle. It is FISP that has guaranteed Zambia’s food security in spite of droughts in the intervening years. (Incidentally, and unsurprisingly, the IMF has consistently tried to place FISP on the chopping block. They may very well succeed).

It is this record breaking maize harvest of 2021 that Hichilema’s government inherited after winning the August 2021 presidential elections. In addition, the new government inherited maize stock of 841,000 MT that was brought forward from the previous year (2020) as surplus. Therefore, the total maize supply in the year Hichilema won his first election was 4.5 million MT (the total of 3.62 million MT and 841,000 MT)! This was more than sufficient for 2021’s consumption given that total consumption (including animal feed and exports) was estimated at 3 million MT, leaving a record surplus of 1.5 million MT to be brought forward into 2022 (the following year).

Immediately, Hichilema’s government began to eye 2021’s surplus as a potential source of export revenues, likely urged on by the likes of the IMF who encouraged government to “take advantage of market opportunities presented by neighbouring countries”. The new government then began to make policy changes that would increase Zambia’s maize exports. In their first budget speech delivered in October 2021, barely two months into their administration, the new Minister of Finance scrapped the 10% tax on maize exports that had been in effect since 2017, a tax that likely prevented a hunger crisis in 2019 given that year’s drought. Parallel to this was a huge public relations effort whose objective was to justify the new policy of encouraging an increase in maize exports (Zambian TikTok user @rooney0303 in a video that has gone viral has compiled some of the statements from various government ministers that were given to justify the policy).

Unsurprisingly, this new policy substantially increased maize exports. Data compiled from the Ministry of Agriculture/Zambia Statistics Agency shows that the volume of maize exports increased by at least 75% from 2021 to 2022! Data from the Bank of Zambia shows that the monetary value of maize export earnings increased from US$49 million in 2021 to US$109 million in 2022, an increase of 122% in a single year!

Much of Zambia’s maize is exported to countries in the region. One such country is Kenya where data from the Kenya Bureau of Statistics shows that maize imports from Zambia increased in value by a whopping 371% in 2022, another incredible number in a single year. (These patterns were likely repeated in other destination countries (DR Congo, Tanzania, etc…) where data is not readily available as is the case with Kenya).

The scale of the policy failure becomes even more evident when one considers that this unprecedented increase in maize exports took place in a year when the country registered one of the biggest declines in maize production. As earlier stated, 2021 registered record production of 3.62 million MT. But in 2022 production dropped by close to a million metric tonnes to 2.7 million MT on the back of poor rainfall and the haphazard handling of fertilizer distribution in the 2021/22 farming season, a farming season presided over by Hichilema’s new government.

Huge exports on the one hand and declining production on the other bequeathed to 2023 a smaller surplus than was bequeathed to 2022. We do not as yet have a complete statistical picture of what took place in 2023 but it is quite clear from statements made by government officials that maize exports might have continued unabated in that year as well.

The sum total of the evidence presented here paints a picture of policy failure as being at the heart of the food disaster declared by the president last Thursday. El Niño has made dire what was already a bad situation.

Bernadette Mwansa Mushinge is an independent researcher with an MSc in Agricultural Sciences from Stellenbosch University. She can be reached at bernadettemushinge@gmail.com.

Grieve Chelwa is Associate Professor of Political Economy at The Africa Institute and non-resident Senior Fellow at Tricontinental: Institute for Social Research.

By Grieve Chelwa

On 31st January, Zambia’s Energy Regulation Board (ERB) announced yet another upward revision in the retail prices of petroleum products in the country. With very few exceptions, petroleum prices have been adjusted every month by the ERB since December 2021.

Prior to December of 2021, the prices of petrol and diesel, the two most important petroleum products by consumption in Zambia, were respectively K17.62 per litre and K15.59 per litre and had remained that way for much of the year. These prices were revised upwards starting that December and subsequently so on an almost monthly basis leading up to the announcement on 31st January.

In its latest announcement, the ERB increased the prices of the two commodities to K34.19 per litre for petrol and K32.15 per litre for diesel. Incredibly, these new prices meant that petrol and diesel had nearly doubled in price in the two years since December 2021 when the ERB’s aggressive pricing strategy began.

This effective doubling of fuel prices in two years is a direct result of the financing deal that the Zambian government struck with the International Monetary Fund (IMF) in December of 2021 (formally approved by the IMF’s Executive Board in September of 2022). A lynchpin of that deal was the IMF’s directive that the Zambian government should eliminate all subsidies to fuel consumption. Prior to this, Zambia maintained a regime of direct and indirect subsidies that helped cushion consumers from the wide swings in international oil markets.

The doubling of petrol and diesel prices since December of 2021 is unprecedented in Zambia’s recent history. Price data from the ERB shows that the rate of increase in fuel prices was much slower in the previous decade. For example, it took seven years for petrol and diesel prices to double between 2011 and 2018. This time around it has only taken a third of the time showing that the Zambian government has followed the IMF’s diktat to the letter.

Developments in the energy sector have had, as expected, devastating impacts on the wider economy. Data from the Zambia Statistics Agency shows that the rate of increase in food prices (i.e., food price inflation) is higher than overall inflation. Of equal concern is the fact that transportation costs have been increasing at a rate that is twice the overall inflation rate — much of the country’s working population relies on public transportation to get to and from areas of economic activity. The Jesuit Center for Theological Reflection, a widely respected NGO, has recently sounded the alarm that the country is undergoing a cost of living crisis that is disproportionately impacting the poor. The National Union of Small-Scale Farmers has argued that the price hikes “have negatively affected the cost of doing business for farmers across the country”. The Zambia Association of Manufacturers expects that the price hikes will gravely impact the country’s industrial output.

In following the IMF’s directive on the removal of subsidies, the Zambian government has unleashed a brutal cost of living crisis on its people and is crippling the economy in ways that will take ages to rectify.

Grieve Chelwa is an Associate Professor of Political Economy at the Africa Institute and a Non-Resident Senior Fellow at Tricontinental: Institute for Social Research.

I was on Hot FM Zambia’s Red Hot Breakfast Show this morning talking about Zambia’s economic outlook. You can listen to a recording of that conversation below.

Last week Steve Hanke, a professor of economics at Johns Hopkins University in the US, released a tweet claiming that Zambian authorities were underreporting the country’s inflation rate. According to Hanke, Zambia’s inflation rate was 48% rather than the 13% reported by the Zambia Statistics Agency (Zamstats), the official entity that calculates the nation’s inflation rate. In other words, Hanke is claiming that Zamstats were manipulating the nation’s inflation rate and reporting it to be 4 times lower than it actually is! A serious allegation.

Naturally, Hanke’s missive has caused quite a consternation in Zambia given the country’s fraught political landscape. Critics of the government are citing Hanke as credible evidence that the government’s economic recovery plan is in disarray with the government hiding the true extent of the damage. After all Hanke is not a random person off the street but a professor of economics at a prestigious university in the US.

So who should we believe between Hanke and Zamstats in this battle of inflation? To answer this question, we first need to understand what an inflation rate is and how it is calculated.

Inflation is said to take place when the prices of goods and services rise in an economy. The inflation rate is, on the other hand, the average rate at which prices are rising in an economy often expressed in terms of a year. Therefore, according to Hanke, prices in Zambia in 2023 rose by an average of 48%. On the other hand, according to Zamstats the rate of price increase in Zambia last year was only 13%.

The process of calculating an inflation rate is not a simple one that can be performed from one’s desk. In most jurisdictions around the world, calculating the inflation rate requires the sending out of an army of survey enumerators on a monthly basis to visit shops, supermarkets, market places and so on to collect information on the prices of goods and services that are relevant to a typical household (relevancy is itself determined by another survey that takes place every couple of years). After this price information is collected, statisticians then compute a weighted average price that is then used to calculate the inflation rate. This is the method that Zamstats followed to produce the 13% number that Hanke is disputing. This is also the method followed by many other statistics agencies in the world including the Bureau of Labor Statistics which calculates the inflation rate in the US.

So how did Steve Hanke calculate Zambia’s inflation rate? Did he send out a different army of enumerators who collected price information and arrived at a different inflation rate? The answer is no.

What Hanke does, working from the safety and luxury of his office in Maryland, is to calculate an inflation rate based on some simplistic assumptions underpinning the concept of Purchasing Power Parity (PPP). The basic idea behind PPP is that the inflation rate (i.e., the percentage change in prices) is approximately equal to the percentage change in the exchange rate.

Therefore, since we can always easily observe the percentage change in the exchange rate (exchange rates are always transparently quoted across Bureaux De Change in Lusaka), we can then calculate the “true” inflation rate as the percentage change in the exchange rate. If the rate of depreciation of the Zambian Kwacha was 48% last year, then the inflation rate last year was, voilà, 48%!

One can already see that Hanke’s approach is a dangerously simplistic way of dealing with a very important and complex problem — why have a Zamstats in the first place if Hanke can easily calculate inflation rates for us? For one thing, there is very weak real-world evidence in support of the PPP concept on which Hanke bases his work. Second, and buried in the details, is that the PPP approach assumes negligible to zero inflation in the US, something that hasn’t been true in the recent past (PPP requires a comparison country which is often the US). Relatedly, the condescending presumption is that we can always trust the US’s statistics agency but we can’t trust Zambia’s. (Ghanian economist J. Atsu Amegashie did a wonderful job of taking apart Hanke’s work in this post last year after Hanke decided to go after Ghana’s statistics agency).

All this to say that I have a great deal of confidence in the inflation numbers being published by Zamstats. Calculating the inflation rate is part of their bread and butter and they have done it since time immemorial and have, therefore, accumulated the necessary skills to do this work properly.

To be sure, Zambia’s inflation rate has continued to rise over the last year or two with grave consequences for the welfare of the country’s population, especially its poor. And I am in agreement with those blaming the government’s patently misguided economic policy for this state of affairs. But there is no evidence supporting the claim that the government is manipulating the country’s statistics.

Grieve Chelwa is an Associate Professor of Political Economy at the Africa Institute and a Non-Resident Senior Fellow at Tricontinental: Institute for Social Research.

By Grieve Chelwa

Zambia’s debt talks have yet again hit a snag. This time around the hold-up is due to disagreements between official creditors, on the one hand, and private creditors on the other, with ordinary Zambians caught in the crossfire.

The basic gist of the latest hold-up is the following: For Zambia’s debt restructuring to succeed (i.e., provide sufficient fiscal room for us to grow ourselves out of the crisis), our creditors (the people we owe money) will have to take on “haircuts”. A haircut in finance is agreeing to accept less money than is owed. For example, if I owe $1 and find myself in a debt crisis and can’t pay back the full amount, my creditor and I can agree that I instead pay them back only 60cents ($0.60). That is, my creditor accepts to take on a loss of 40cents ($0.40) which translates into a 40% haircut.

Why would a creditor accept a haircut in the first place? Well because if they insist on my paying the full $1, they may end-up with nothing because my attempt to pay back the full amount may very well crash my economy to the point where all debt is unsalvageable. Therefore, haircuts, in times of debt distress, are not just important for the borrower but are also crucial for the creditor. In other words, the creditor is actually doing themselves a favour by offering the borrower a haircut.

In the particular case of Zambia, both official and private creditors have, unsurprisingly, agreed to take on haircuts. But the bone of contention is that the Zambian government has implicitly agreed to two different sets of haircuts for the two types of borrowers.

Analysis by Debt Justice, a civil society group, shows that official creditors had earlier agreed to a rather significant haircut of 45% with the Zambian government. On the other hand, the government, in a recently announced deal, seems to have promised private creditors a relatively generous haircut of 27%, which might even be as small as 3% if Zambia’s economy improves in the medium term!

This has naturally infuriated official creditors not least because it’s in violation of the so-called Comparability of Treatment Principle under the G20’s Common Framework. The comparability principle requires that private creditors take-on a haircut that’s at least as large as the one taken on by official creditors (i.e., a haircut of no less than 45%).

Why did the Zambian government think it wise to promise different sets of haircuts to different sets of creditors, a situation that would clearly violate comparability of treatment?

Perhaps naïvety about how the real world works on the part of our policymakers? Or incompetency?

Or was this part of some geopolitical gamesmanship? For one thing, the official creditor that stands to lose the most from such a deal is China (holds the bulk of our official credit) while Western-allied private creditors (mostly bondholders) would stand to gain. Zambia, under the presidency of Hakainde Hichilema, seems to have pivoted its foreign policy allegiance to the Western bloc of countries (if in doubt have a look at the country’s most recent voting record in the UN General Assembly on those matters that are of geo-strategic interest to the West).

In any case, whatever the reasons, one thing that is increasingly clear is that Zambia is being used as an experiment to perfect the imperfect Common Framework.

It was easy to see from the outset that the the Common Framework, in its present form, wouldn’t deliver a speedy resolution to Zambia’s debt woes (I said as much in an appearance on Diamond TV in September of 2022). It was always going to be a drawn out process to use the Common Framework’s one-size-fits-all approach to resolve the specific case of Zambia’s debt given the varying set of creditors all with different preferences, interests and so on.

It is worth keeping in mind that a victory for the Common Framework would be a victory for the Western-dominated Global Financial Architecture — an architecture that periodically faces existential challenges because of its inherent contradictions.

But for the Common Framework to eventually work, it is necessary to pilot it on some backwater country like Zambia. It is merely a footnote that much harm is being inflicted on Zambians in the conduct of this grand experiment.

Grieve Chelwa is an Associate Professor of Political Economy at the Africa Institute and a Non-Resident Senior Fellow at Tricontinental: Institute for Social Research.

By Grieve Chelwa

Close to three weeks ago, the Zambian government announced that they'd finally reached an agreement with official creditors to restructure some $6.3billion of external debt. The agreement allows for much longer maturities, concessional interest rates and a moratorium on principal repayments until 2026. Further, the agreement excludes domestic debt from being subjected to restructuring, which is a big relief. Requiring the restructuring of domestic debt would have been fatal for our nascent bond and financial markets.   

The debt deal is certainly a welcome development that should provide much-needed fiscal space for government to (hopefully) undertake development-oriented projects. It is also worth pointing out that this deal only solves one part of Zambia's debt, which is debt owed to official entities (foreign governments, foreign official lenders, international financial institutions, etc...). Commercial debt, which is the other side of debt and owed to banks and bondholders, still remains unresolved (although reports suggest that a deal here too is eminent). The Ministry of Finance reported commercial debt as $5.91 billion at the end of 2022 (although this number is higher now due to the reclassification of some official debt as commercial debt).        

In reading through the multitude of coverage on Zambia's deal, it struck me that the deal was effectively a deal with China. Several sources (see here, here and here) have reported that of the $6.3billion agreed to be restructured in the deal, about two-thirds (some $4.1billion) is money owed to the state-owned Export and Import Bank of China (EXIM China). The $4.1billion number is also what you'd get if you summed up all the money owed to EXIM China as contained in the Ministry of Finance's Public Debt Summary Statistics Report from last December (link here). Further, the features of the deal (maturity extensions, low interest rates, brief moratoria on principal repayments, limited haircuts, etc...) have the classic features of China's preferred approach to debt renegotiation/restructuring (see here, here and here for some of the academic evidence). 

All this goes to show that the deal announced at the end of June was largely a deal with China. A columnist writing for Bloomberg on the deal rightly titled his article 'Zambia's Deal with China is a Landmark Moment'.  

The above begs the question: What was the point of the Common Framework in this process? 

The Common Framework, proposed by the G20, is supposed to be a mechanism to help poor countries resolve their debt problems by bringing together official creditors and borrowers. But for Zambia, which applied for debt treatment under the Common Framework over two years ago, the process was greatly slowed down as it became a sight for geopolitical shenanigans and posturing particularly by entities and countries that are no longer singularly important for the provision of credit to the global South and Zambia in particular. For example, US Treasury Secretary Janet Yellen and IMF Managing Director Kristalina Georgieva used their visits to Zambia in January to cast China as the villain in the Common Framework process. 

All the while that some folks were playing geopolitics with Zambia's debt, millions of Zambians, many of them crashingly poor, had to contend with the havoc wreaked by the uncertainties of unresolved debt. The value of the Zambian Kwacha has swung like a yo-yo in this long period of uncertainty causing a tailspin in the prices of essential commodities, many of them imported. 

This is why at different stages in the process I, among some others, urged the Zambian government to ditch the currently inadequate multilateral approaches and rather negotiate directly with our creditors. All that we got with the Common Framework was a greatly delayed debt deal whose terms, as per the scholarly evidence above, are not materially different to what we'd have gotten had we gone directly to China in the first instance. Second, going the route of the Common Framework opened us up to yet another IMF programme whose conditions, as I have argued before on this blog, are anti-poor and anti-development in their design. 

Zambia's experience shows that in this present moment of geopolitical reconfiguration, it is folly for poor countries to use the old, largely western-dominated multilateral system to resolve their economic crises. In the absence of genuinely fair and just multilateral arrangements, poor countries will need to take the initiative into their own hands to safeguard the interests of their citizens and those of future generations. 

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. (Also funny that the IMF is concerned about the  regressivity of fuel and electricity subsidies, yet they don't seem to worry about the regressivity of the VAT!). 

5. Table 3a on page 35 shows that taxes on labour income are also likely to go up in the medium term, and go up at a rate faster than taxes on profits (mining and non-mining). 

The revenue measures in points 4 and 5 above are really pro-rich measures. Difficult to conclude otherwise.

There's been lots of talk about how the IMF has reformed from who they used to be in the past and that they now care about the poor because they want us to increase expenditure on the social cash transfer (SCT). I am sure what I have written above should already cast doubt on the "reformed IMF thesis". Anyway, how much is the envisaged increase in the SCT -- a monthly allowance given to the very poor? Well, they advise that the SCT increases from K90 currently to K110 per month. That is an increase from $5 per month currently to $7 per month! I leave it to you, enlightened reader, to conclude whether these amounts are sufficient to protect the poor from the subsidy removals in points 1, 2 and 3 above and from the expansions in the VAT base in point 4.  

Oh, on page 1, the IMF says that this agreement will immediately result in a disbursement of $185mn from them to us. A signing bonus of sorts for all our troubles. And it's quite funny how this "recovery plan" is continuously referred to as a "homegrown plan" when the IMF's fingerprints are all over it. 

Before I sign off, I would like to address my colleagues in Zambian civil society who went along for the ride with the IMF, appeared in many photo ops with IMF staff and largely gave credence to the opaque process that gave birth to such an anti-poor deal. This, my friends, is on your hands and you went to sleep on the wheel when your role was and historically has been protecting the interests of the Zambian people, especially the least among us. Posterity will be the judge, and I am wagering that the judgement will be one of disappointment. 

Last week, it was widely reported that president Hakainde Hichilema had signed into Law the Bank of Zambia Act of 2022. The new law replaces the Bank of Zambia Act of 1996. According to the accompanying memorandum from the Attorney-General, the new law has many objectives including providing for the establishment of a Monetary Policy Committee and a Financial Stability Committee -- both laudable initiatives. 

However, one amendment that caught my attention, widely discussed and praised on social media, is the introduction of new clauses that guarantee security of tenure of the governor, who is the head of the Bank of Zambia. In the 1996 Act, the governor (and his/her deputies) did not have such security and could be summarily dismissed by the president. Article 10(7) of the 1996 Act read:

The Governor may resign from office by giving three months notice to the President and may be removed by the President. 

Essentially this meant that the president could dismiss a governor at a moment's notice without the need to provide cause. 

The new Act introduces security of tenure in Article 13 (in subsections 3 to 7). The basic gist of the amendment is that the president is now required to constitute a tribunal should he/she see the need to remove a governor (or any of the deputies). The tribunal is then required to carry out its investigations and submit a report with a recommendation to the president in about a month. 

This amendment gives the governor the kind of security of tenure that is enjoyed by the likes of judges and the Director of Public Prosecutions (DPP) although interestingly (and perhaps curiously) the security of tenure of the governor is not guaranteed in the Constitution, as it is for judges and the DPP, but in subsidiary legislation (more on this below).  

On the face of it, this amendment seems like a good thing as it buttresses the so-called independence of the central bank. According to the "independence thesis", central banks are sacred institutions that ought to be staffed by computer-like technocrats that are insulated from the vagaries and emotions of politics, leaving them to focus almost exclusively on technocratic concerns with price stability. (As a matter of fact, Article 5(2) of the new Act makes it explicit that price stability is the new god of our central bank and little else should sway their decision making).

But as careful scholars have demonstrated, central bank independence and its hyper-focus on price stability is a terrible policy constraining the ability of developing countries to fully transform their economies via, for example, large-scale industrialisation. Lots of scholars have documented how the now-developed and industrialized countries have historically used their central banks as tools of industrial policy that have deliberately directed financing towards strategic sectors of the economy. Writing in 2006, the economist Gerald Epstein had this to say:

…virtually throughout their history, central banks have financed governments, used allocation methods and subsidies to engage in ‘sectoral policy’ and have attempted to manage the foreign exchanges, often with capital and exchange controls of various kinds. The current ‘best practice recipe [of central bank independence with a narrow focus on price stability]’...goes against the history and tradition of central banking in the [developed] countries now most strongly promoting it…

And the distinguished Malawian economist Thandika Mkandawire writing about the South Korean experience had this to say:

[V]irtually all central banks have engaged in ‘industrial policy’ or ‘selective targeting’. In the credit allocating functions central banks have been “most effective in helping to foster development, especially in ‘late developers’ [such as South Korea], where they have been part of the governmental apparatus of industrial policy” (Epstein 2006). In South Korea, the Central bank was subservient, “nearly an administrative arm of the Economic Planning Board and the Ministry of Finance” (120)

 Central banks, in the now-developed countries have historically viewed their societal roles as going beyond narrow and technocratic concerns with price stability. In so doing, these central banks have not been independent of the body politic but have been every bit a part of it, and in most cases subservient to it. 

At this point in our country's development, the Bank of Zambia ought to be a vital engine of industrialization directly providing and directly facilitating the type of long-term capital required for meaningful (and not lip service) industrialization. We need the central bank to not shield itself from the people, but to be with the people and answerable to them as the "People's Bank". 

Additionally, new academic work has shown that "independence" is often only in name. As a practical matter, so-called independent central banks tend to be beholden to the moneyed classes, a situation that has led to rising inequality in those parts of the world that have institutionalized such "independence". 

In the Zambian case, it is also interesting to note that central bank governors have largely enjoyed sufficiently long tenures even in the absence of formalized security of the sort contained in this new amendment. For example, since 1992, the average tenure of office of a governor has been a healthy 5 years. If we exclude the lone year served by Christopher Mvunga, the average tenure rises to 6 years. In many ways, Zambian central bankers have enjoyed lengthy stays in office -- a situation suggestive of a healthy dynamic with their principals. For example, current governor Denny Kalyalya, during his first stint as governor, enjoyed a five year tenure in spite of his public disagreements with the policy positions of government. So why the need to secure tenure at this point in our country's development trajectory?

Lastly, my good friend Goodwell Mateyo, who recently appeared on Capital FM with Frank Mutubila, and a lawyer by training, has made the rather interesting argument that the new amendment might be in violation of the Constitution. Additionally, Mateyo has argued that matters around security of tenure ought to be reflected in the supreme law of the land, the Constitution, as opposed to subsidiary legislation as is the case with judges and so on. Also, the threshold to make a constitutional amendment is much more stringent than an amendment to an Act. Something as heavy as safeguarding the tenure of office of the governor ought to have been subjected to such a stringent criteria. You can listen to a recording of Mateyo's insightful interview with Frank Mutubila by clicking here.      

Comments welcome: grievechelwa@gmail.com 

 Yesterday, Minister of Mines Richard Musukwa announced that the Zambian government had decided to fully take-over Mopani Copper Mines (MCM) by purchasing Glencore's and First Quantum Mineral's combined 90% stake in the mine. Prior to this, government's shareholding in the mine was 10%. Specific details on the transaction are still very vague. However, the clearest statement on the deal so far is from Minister Musukwa's speech on the transaction (pdf available here). In this hurriedly written post, I want to recount the main points of the transaction as detailed by the minister and provide some reflections on the same. I hope to write more substantively about this in the coming days when more details are hopefully made available.   

Before engaging with the minister's points, I want to say that I wholeheartedly agree in principle that we as a country need to fully own and run our copper mines. One of the biggest policy mistakes of the last 25 years or so was the decision to privatize the copper industry. In his 2015 Goma Lecture presented in Lusaka, the late economist Thandika Mkandawire estimated that Zambia would have accrued national savings of about $20bn had we never sold the mines. And these savings would have been deployed towards productive investments and large-scale social spending negating the need to borrow from external sources. Selling the mines was a big mistake. 

The three main features of the transaction announced yesterday are the following (this is taken verbatim from the minister's statement): 

1. The $4.8bn loan owed by MCM has been agreed to be reduced to $1.5bn. MCM as an asset was owing loans amounting to $4.8bn from Glencore (Bermuda), Glencore International and Carlisa. 

2. The sale price is $1 

3. The [$1.5bn] loan [mentioned in point 1] is to be repaid through an off-take agreement granted to Glencore International using 10% of the production. That means the loan will be repaid between 10 and 17 years depending on the price of copper. You may wish to know that prior to this transaction Glencore already had an off-take agreement with MCM and this is expected to continue. 

Point 2 is merely academic and so I won't spend time on it. Points 1 and 3 are where the action and the controversy is in my opinion. Let's start with point 1 and then go to point 3. 

On Point 1 

The point basically says that MCM, itself a Glencore entity, had over the years received financing of upto $4.8bn from three Glencore entities (Carlisa is majority-owned by Glencore with minimal shareholding from First Quantum Minerals. From the look of things, Carlisa, based in the British Virgin Islands, was set-up to manage Glencore's and First Quantum's investments in MCM). As part of yesterday's transaction, Glencore (or Carlisa which is really the samething) want the Zambian government to assume this loan which the previous owners have "graciously" written down to $1.5bn. 

There are several issues that are problematic about this. First, is there anyway to prove that this was an actual loan and not a notional one? This is not an easily dismissible question given the overwhelming evidence showing that multinationals, especially those in the extractive sector, often use intra-company loans as an effective mechanism for tax avoidance. 

Second, the $4.8bn was a loan from the parents to the subsidiary. In other words, the parents invested in their child and these investments did not work out. Why should the Zambian people pick up the tab of the parents' misjudged investments? The discussion would be different if the loan had been issued by, say, an independent bank with limited control over MCM. Glencore were fully in-charge of MCM when these loans were being granted. It appears that the investments amounted to nought. Glencore should completely write-off these loans and consider them bad loans.   

Third, the implication of all this is that the actual/effective selling price of the 90% shares in MCM is $1.5bn (the so-called $1 selling price is a distraction). The Financial Times reports that Glencore had in August 2020 valued MCM at $700mn. 90% of $700mn is $630mn and not $1.5bn. We are clearly overpaying (and possibly over over over paying if it turns out that the $4.8bn was a notional loan).  

On Point 3

This point basically says that Glencore wants to guarantee the payment of its loan by guaranteeing for itself 10% of MCM's copper output from now until the $1.5bn loan is repaid. The minister reckons that this arrangement might be in place for about 12 to 17 years depending on the performance of the copper price. All this assumes a healthy outlook for the copper industry over the medium to long-term. But what happens when the copper price plummets below healthy? What will Glencore do? Sell the loan onto Vulture Funds? Repossess Zambian assets? 

These are not unreasonable questions given the well-known history of boom and busts in the commodities markets. (As an aside, the current debt crisis engulfing the African continent is partly the result of rosy commodity price forecasts that were floating around circa 2009/2010).   

Second, between points 1 and 3, point 3 is the vaguest in terms of actual details. What, for example, is the implied interest rate for this loan? We need to know this so that we can compare whether it would have been cheaper to borrow the $1.5bn via another vehicle (bank, capital market, etc...) and immediately pay-off the Glencore loan. I suspect that the implied interest rate on this loan is exorbitantly high. It is even higher if you include the opportunity costs associated with being forced to sell 10% of your copper output for the next 2 decades to a private entity. For instance, MCM would have to turn down some other buyer wanting 100% of its copper at a price offer above the market price. This would be a loss to MCM and the country. 

We really need more details on point 3 given all this. 

Can Zambians Run Mines?

Before concluding I want to deal with the age-old question of whether Zambian's can run the mines. 

As I stated at the outset, I am all for the country owning the mining industry. An objection often raised when I make this point is that Zambians do not have the know-how to run mines. The evidence those arguing this way produce is the performance of copper production under ZCCM in the 30 year period (1970 to 2000) that Zambia had a controlling stake in the entire mining industry (ZCCM which stands for Zambia Consolidated Copper Mines was the conglomerate that ran the mines). For those arguing this way, the relative success of the industry under private hands (since about 2000) is further evidence in their favour. 

As I argued in a piece for Africa Is A Country in 2015, the story of Zambia's copper production is really a story of the copper price. In times when copper prices have been high, so have been production and profitability. In times when prices have been low, so has production and profitability. Specifically in 2015 I wrote: 

In the decade running up to nationalization (1960 to 1968), real (inflation-adjusted) copper prices increased by 69%. In the three decades after nationalization but before privatization, copper prices performed as follows: a 45% decline in the 70s, a 7% increase in the 80s and a 39% decline in the 90s. Over the entire period 1970 to 1999, the real (inflation-adjusted) price of copper declined by an incredible 70%!...Between 2000 and 2010 [after the mines had been sold to private hands], real (inflation-adjusted) copper prices increased by a whopping 230%! Anybody, be it a state-run entity or private entity, would have responded to this incredible rise in copper prices by producing more [and registering healthy profits].

Our prayer then is that copper prices should be in our favour as we enter this new era of "re-nationalization". Our second prayer is that the Patriotic Front government manages this God-given resource prudently and for the benefit of all Zambians. This is a big prayer given recent corruption scandals that have hit the party.