In this podcast, we discuss how effective governance can help nations solve the debt overhang problem.
COP 27 and the Future of Climate Finance. In this podcast, we discuss the future of climate finance in the context of the COP27.
How to register a business in Zambia. In this podcasts, we hear different voices including one from a regulator on how to register a business in Zambia.
Transcript: How effective governance can help nations solve the debt overhang problem
HOW EFFECTIVE GOVERNANCE CAN HELP NATIONS SOLVE THE DEBT OVERHANG PROBLEM
PRESENTER: Welcome to the FourthIR research podcast. A place where we take problems bothering people nationally and globally and discuss how research can help address those challenges. Today on the podcast I have FourthIR CEO and Researcher; Byrne Kaulu, who discusses how effective governance can help nations solve the debt overhang problem. Our discussion will be in the context of Zambia. Byrne, for those who might not know, tell us abit about Zambia.
BYRNE: Zambia is a landlocked country in Sub-sahara Africa with an area of 752,614 km² making it the 39th largest country in the world. The country's central statistics office started conducting it's national census in the third quarter of 2022. This activity is done every ten years and so Zambia's population is estimated to be just under 19million prior to the census.
PRESENTER: Despite being a mineral rich nation, debt remains a problem.
BYRNE: The problems began as early as the 1970s, a few years after the country got independence from Britain in 1964. Prices of copper, which is Zambia's major export and income earner started falling while oil prices rose. The government of Zambia borrowed mostly from western financial institutions to finance operations. By the 1980s the country was in a debt overhang problem.
PRESENTER: What is a debt overhang problem and did Zambia default?
BYRNE: The debt overhang problem occurs when a nation's debt is so large that it can not take on additional debt to finance projects. It occurs because much of a nation's earnings go to servicing it's current debt obligations with nothing left for investment thereby foregoing potential growth opportunities.
PRESENTER: You are listening to the FourthIR Research Podcast. A place where we take problems bothering people nationally and globally and discuss how research can help address those challenges.
Today on the podcast I have FourthIR CEO and Researcher; Byrne Kaulu, who discusses how effective governance can help nations solve the debt overhang problem. Let's take a break and when we come back, we answer the question, did Zambia get out of the debt overhang problem. If so, how?
SHORT SONG, INTERLUDE
PRESENTER: Byrne, did Zambia get out of the debt overhang problem and if so, how?
BYRNE: Begining 1983, IMF lent money to Zambia to help it pay back it's loans. Some pundits believe this was only a way to bail out the western banks who had recklessly lent money to countries like Zambia rather than to help the Zambia.
PRESENTER: What did IMF and World Bank want in return from Zambia for the seeming bailout?
BYRNE: IMF and World Bank loans come with terms and conditions called conditionalities. These conditionalities or structural adjustment programs (SAPS) have often compelled nations to privatise national assets, relax international trade restrictions and cut subsidies among others. Zambia was placed on a list of countries called Highly Indebted Poor Countries (HIPC). Later, on meeting the conditionalities, also called the HIPC completion point, a country would be removed from the HIPC list and some of it's debt forgiven.
PRESENTER: Did Zambia reach the HIPC completion point?
BYRNE: Zambia reached the HIPC completion point in 2005 with reports suggesting the around $4billion of it's debt was forgiven.
PRESENTER: What is appalling though is that debt has been on the increase in recent decades. Why Byrne?
BYRNE: Research shows that Zambia's debt-to-GDP ratio has increased astronomically from about 22 percent in 2011 to 56 percent in 2018 and that at a debt to GDP ratio of 40 percent the positive effect of debt on economic growth becomes negative of Zambia.
PRESENTER: What are some of the ways Debt to GDP ratio can be kept low and optimal?
BYRNE: Several. But one major one is governance.
PRESENTER: Tell me more.
BYRNE: Just like private companies, every country needs strong controls around debt accumulation. It is important that objective government agencies approve the undertaking of projects and loans related to those projects. There must be appropriate segregation of duties with respect to project activities and someone must have full operational responsibility for project outcomes of projects. Adequate responsible decentralisation is needed to ensure effective delivery but responsibility and accountability through effective internal and external audit is critical so that national leadership makes effective control decisions.