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By MAIMBOLWA MULIKELELA –

THE Bankers Association of Zambia (BAZ) has appealed to the Government to keep expenditure under control and within programmed levels to avoid fiscal deficits.
BAZ chairperson Shankardas Gupta said it was important for Government to see to it that expenditure was contained within programmed levels to avoid any funding gaps and should only use borrowed funds for infrastructure development.
Mr Gupta said by doing so, it would help create long term sustainable economic development.
He said this when he appeared before the Parliamentary Committee on Estimates in Lusaka to address the issue of Zambia’s current fiscal deficit and its effects on the performance of the economy.
Mr Gupta informed the Committee that the main drivers of the current fiscal deficit in Zambia were the increase in salaries for public service workers, higher than budgeted purchase of maize at fixed prices to guarantee farmers sufficient income for their produce.
The other was the funding gaps for major infrastructural projects in the transport, education and health sectors.
Mr Gupta said care must be taken to avoid debt concentration.
He highlighted that a deficit that was created to finance capital assets had the potential to generate future incomes which had high economic growth and incomes as well as improved living condition for the public.
“The effect of the current fiscal deficit on the economy and we recommend that Government put in place measures to improve the management of the deficit. A fiscal deficit tends to put pressure on the Government to borrow to finance the gap that is not met by revenue,” he said.
Mr Gupta said recently the Government issued sovereign bond worth US$1 billion to finance infrastructure development in the transport, education and health sectors of the country.
“We have observed that when the deficit is rising the Government tends to borrow heavily on the local market through Treasury Bills and Government bonds. The effects are reducing the funds available for onward lending to key sectors of the economy such as SME’s and the private sector which are the main drivers of economic growth,” Mr Gupta said.
He said past experience indicates that global investor’s investment behaviours in developing country bonds are extremely fragile and sensitive.
Mr Gupta explained that relative to concessional finance, sovereign debts generally involve higher interest rates which tend to be a function of a host of country risk factors such as political, economic, country/sovereign and exchange rates.