ZAMBIA'S DEVELOPMENT STRATEGIES AND CHALLENGES
2.3 Hijacked Development
2.3.1.2 New Economic Recovery Programme
However, before the FrNDP, the government tried to implement a new programme called the New Economic Recovery Programme (NERP) which was designed in 1987 after the government decided to suspend the IMF/World Bank sponsored programmes. In a sense, this was a political survival strategy rather than an economic development strategy.
During the period that the IMF programmes were implemented, social upheaval emerged especially in major urban centres, mainly the Copperbelt Towns. This was fuelled by the removal of subsidies on essential food stuffs, and the sky-rocketing of prices for other basic commodities (Mwnawina,1993).
Frequent demonstrations and looting of public properties and shops on the Copperbelt towns in 1986
Using their financial leverage, the Bank and the Fund formulated a number of hurdles as conditions which had to be satisfied to be eligible for balance of payment support and other credit arrangements. Amongst the important conditions that governments were required to implement under SAP include, reducing national budget deficits by cutting down on government expenditure, public sector reform programmes, removal of subsidies, promoting free trade, privatization of parastatals, lowering interest rates, a free foreign exchange regime, reducing inflation and the devaluation of the currency (See Chitonge, 2005).
made it difficult for the government to continue with the IMF/World Bank programmes mainly because of the threat to social and political stability posed by the dissatisfied masses. Thus, when the government suspended the IMF programme in May 1987, it re-introduced food subsidies in form of maize meal coupons to target poor families, and reintroduced price controls on all essential food stuff including transport and fuel, reintroduced a fixed exchange rate regime, foreign exchange controls, and the ceiling of debt service to 10% of total export earnings (Beinstein &Kayizzi-Mugerwa, 2000).
After this unceremonious "divorce" with the IMF amid allegation of neo-colonialism, Dr. Kaunda focused on growing the economy from within. This is evident from the theme given to NERP:
"Growing from Our Own Resources." The main objectives of the NERP policy was more like SAP that went before it except the re—introduction of subsidies on basic food, price and exchange controls.
Although it has been argued that NERP achieved a lot of positive goals (Mwnaza, 1992), it is difficult to defend this assertion given that NERP had only been implemented for a few months before the reported positive growth was recorded. It is highly improbable that these positive results could be attributed to NERP. Much of it could be due to the good farming season that eased the pressure on the foreign account due to the drop in the importation of maize and other agricultural goods.
2.3.1. 3 Return of the Mutinous Son
As predicted by many observers, the government could not 'go it alone' for a long time. In 1989, the critical shortage of foreign currency forced the leadership back on its knees to the IMF/World Bank despite having accused them of being agents of neo-colonialism. At this time, the government was much weakened and had little power even to negotiate with the Fund and the Bank (Fraser, 2007). It was in this context that the Fourth National Development Plan was supposed to be implemented from
1989 to 1993. But events overtook it, and its implementation was derailed by the mounting political pressure leading to the 1991 general elections and the re-introduction of multi-party politics.
2.3.1.4 The Debt Crisis
Over this period of hijacked development, from 1978 when the IMF started to get directly involved in Zambia's economy, external debt sky-rocketed as shown in Figure 2.6 below. From a debt stock of about US$ 800 million during the 1970s, external debt sharply rose to more than US$3 billion in 1980 before climbing and stabilizing at the staggering figure of about US$ 7 billion in 1990.
Figure 2. 6 External Debt and Debt Service
7050- 6050- 5050- Million (US$) 4 0 5 0^
3050- 2050- 1050
50-
^L • • • • • •
:~ " Debt Service
• Ext Debt
1970 1980 1990 1995 2000 2001 Year
S o u r c e : World Bank(2002)
Servicing of debt also increased with the increasing outstanding amount. As evident in Figure 2.6 above, the servicing of debt seemed only to provoke more debt. Evidence of a "debt trap" is clear in Figure 2.7 below showing the export earning to debt ratio of about 1:7.
Figure 2. 7 Export Earnings 1997, Total Debt Stock (1985 and 1997)
; E x p o r t s o f g o o d s a n d s e t E x t e r n a l d e b t , T o t a l C"->S$ i E x t e r n a l d e b t , T o t a l ( U S S i
c e s , T o t a l ( U S $ m i l l i o n s ) , 1 9 9 7 i l l i o n s ) . 1 9 8 5
•IlionsX 1 9 9 7
Z a m b i a D a l a F r o m H u m a n D e v e l o p m e n t R e p o r t 1 9 3 3
The deteriorating economic situation in Zambia during the 1980s and 1990s makes it clear that the country was in no position to pay the debts, and yet Zambia had to borrow more money just to service the debt. The problem of debt becomes more acute when viewed as a ratio of other aggregates such as GDP and export earnings. As Figure 2.7 above shows, Zambia's export earnings in 1997 was only 16% of its total debt stock! Worse still, total debt rose from about US$ 4.5 billion in 1985 to close to US$7 billion in 1997. In terms of total debt to export earnings and GDP, the ratios were 525: 52 and 201:03 respectively in 1989 (Mwanza, 1992). What this means is that Zambia's total external debt was more than 500% of its annual export earnings and more than 200% of its GDP! Another important point to note here is that after more than a decade of IMF and World Bank promised "magic bullet"
solution to the country's economic crisis, the country's economy did not show any signs of improving as illustrated by the various indicators above.
2.3.1.5 Change of Government and New Economic Reforms
At the end of 1991, the opposition party Movement for Multi-Party Democracy (MMD) defeated UNIP in multi-party elections held towards the end of that year. Reasons given in the literature for the MMD victory differ but one that is widely accepted is the MMD's promise to reform the economy and reverse the general economic decline experienced over the past decades .
Immediately after taking office, the MMD "embarked on what has been described as 'one of the most ambitious economic reform programmes on the African continent.' In the first phase, from 1991-1994, with the backing and approval of World Bank and IMF, two major types of programmes concerned with structural adjustment and macroeconomic stabilisation were implemented" (AfroneX, 2000: 1).
Broadly, the reforms implemented were a continuation of the neo-liberal programme started in the early 1980s during the first generation SAP. Among the major elements included in the reform package were:
• Implementing a free exchange rate regime
• Lifting of import restriction by tariff rationalization
• Reduction of the public sector and state participation in the economy
• Cutting of public expenditure to reduce budget deficit
• Promotion of private enterprise
• Privatisation of parastatal companies
• Introduction of user fees for social services such as education and health
These reforms were contained in a policy framework called Economic Recovery Programme (ERP, 1992). Contents of this reform programme were to a large extent a child of the IMF and the World Bank in as far these reforms were conditions imposed on Zambia to be eligible for balance of payments support as well as project assistance funds.
Commenting on the reforms, the United Nations Development Programme Deputy Country Representative, Lebogang Motlana, noted that "Zambia probably has the most liberalized economy in the world" (in Situmbeko, & Zulu 2004). Further, the pace of the reforms can be seen from the fact that Though different factors accounting for the MMD victory in 1991 have been put forward, the most convincing explanation of the 1991 MMD landslide-victory is that the MMD won not on policy and economic reform grounds, but mainly because they preyed on people's need for change of leadership stemming from people's dissatisfaction with the 27 years rule by Dr. Kaunda. Akin to this was the public dissatisfaction with the declining social and economic situation as measured by the critical shortage of basic commodities such as sugar, cooking oil, bread, maize meal.
by 1997, 224 parastatal companies out of a total of 275 had already been privatized (Bienstein &
Kayizzi-Mugerwa, 2000; Situmbeko & Zulu, 2004; Afronet, 2001).