By Alexander Nkosi
An economy is like a patient. As you administer medication to a patient, it is important to keep the vitals like temperature and BP stable. Having these vitals stable does not mean the patient who has so many complications is healed. Similarly, an economy requires maintaining a supply of money that is in tandem with the level of production. If one of the two is way higher than the other, it creates a problem.
I have observed that when inflation rate drops, people want to see a reduction in the prices of goods and services. A drop in inflation rate does not mean prices are reducing, it simply means prices are increasing at a decreasing rate. A simple example is: John Banda jumps on a bus from Lusaka to Livingstone and forgets his wallet at home and you jump on a taxi to go and meet him. When the bus is moving at 100km/hour, you will catch it in Monze and spend K1500 on the taxi you hired. However, if the bus reduces speed to 30Km/ hour, you will find it in Kafue and only pay K400. A reduction in speed of the bus does not mean it stops moving or turns back to meet you, it simply means it is still moving except not as fast as it was. When you catch it in Kafue and spend K400, you will feel bad and say it is meaningless for the bus to reduce speed if you still have to spend K400, but you will only appreciate this when you think of the K1500 you would have spent had it been moving at 100km/ hour. Inflation is also like this.
Hon. Miles Sampa wants government to increase expenditure so as to put more money into the economy and stimulate economic activities. While the logic is fine, government has to source this money the right way. This is why government wants debt restructured so as to release money to pay arrears and dismantle domestic debt. In the absence of this, expenditure has to be financed by heavy borrowing. What does this do? It worsen the same problems we are trying to address. We basically had a decade of expansionary fiscal policy that hasn’t left us better off, this is why balance is important.
Debt restructuring will release funds to invest in economic sectors. It will also reduce government borrowing thereby allowing the private sector to borrow at lower rates. This will lead to an increase in productivity, help firms attain economies of scale and keep prices of goods and services affordable to Zambians. This is what Hon. Sampa wants to see, and the truth is government is also working towards this but in a prudent and sustainable manner.
Thank you and see you back home soon!