1 THE UNIVERSITY OF ZAMBIA

SCHOOL OF EDUCATION

EDUCATIONAL OF ADMININISTRATION AND POLICY STUDIES

INTRODUCTION TO ECONOMICS OF EDUCATION

NAME : MWANSA EMMANUEL (PARALLEL)

COMP # : 2017012632

COURSE CODE : EAP 9075

LECTURER : TOMMIE NJOBVU

TASK : ASSIGNMENT 1

DUE DATE : 26 TH MARCH, 2021.

Question: Discuss the Economics of Zambia’s Current Debt and its implication on

both economic and education development.

The external debt has become a major key problem in the world for developing countries like
Zambia. It has huge debt to service, which mostly entails interest payment on the loan borrowed.
This borrowed loan has its ways of adding burden ot the country in which the government upon
failure to pay back has to find through different means to try and pay the loans. Against this short
background, the aim of this essay is to analyse by defining the key terms such as Debt service,
economic and education developments then it will discuss the economics of Zambia’s current
debt and its implication on both economic and education developments, and conclude the essay.

Debt service is the cash that is required to cover the repayment of interest and principal on a debt
for a particular period. Economic development according to Blakely and Bradshaw (2002) define
it as a work to align human and natural resources of their community to match both global and
regional markets, and they can strive to create new jobs that fit both the people and the place.
Education development is described as being ‘broader than faculty development, in that it
encompassed instructional, curriculum, organizational, and some aspects of faculty
development.’ In addition it is the practice of helping those who teach be better at what they do,
through resources, workshops, one-on-one assistance and other means.

An economist in Degefe (1992) quoted that Zambia like most developing countries experienced
its debt golden years during the 1950s and the 1960s. They say ‘History repeats itself’ and today
we have been hit with massive debt problems which continue to be a burden to every Zambian.
There have been stock of government debt, public and publicly guaranteed lately in the country
by the ruling party patriotic front which just like other former governments continue to bring
about solemn implications for the country’s debt servicing obligations and general economic
performance which has highly affected credit creation, national gross savings, national gross
investment, and central government gross revenue performances. The administration of President
Edgar Lungu has accumulated massive debts in recent years; much of it goes for large-scale
infrastructure projects like roads. These debts has caused the government to seek opportunities to
have talks with the international monetary fund after the country became the first African nation
to default or fail to pay back its debt since the COVID-19 pandemic came in the picture. The
current level of Zambia debt has now stormed to around $12 billion, which half of it comes from
private creditors. To add salt to the wound, the government failed to honor a $42.5 million
payment on a $750 million Eurobond in November 2020 and missed a second bond payment of
$56.1 million on January 30th, 2021. All these actions have resulted to crowd out investments,
domestic interest rates and severe tax reforms to raise revenue for debt servicing.

The Zambian debt has put implications on both economic and education development which has
cost entirely the whole country. Businesses are the accelerators to a country’s economic
development and once there are tempered with; the economic development gets tempered with
too. To elaborate this further, Zambian businesses are viewed as the heart of the country’s
development as there provide opportunities for employment to every citizen and as usual are a
major providers of tax revenues for the government. As a result, it is vital for the Zambian
government to create a favourable environment in which the private sector can thrive and
contribute to the development of the country. Unfortunately, Zambia’s debt servicing is making
it hard for Zambian businesses to thrive and as a result it has led to effect redundancies.

The other implication of debt on economic development is that it has driven up domestic interest
rates, thereby increasing the cost of borrowing, which then crowds out private sector investment.
For instance, despite having massive external debts such as Eurobonds, the Zambian government
has been borrowing from domestic sectors. This has made it hard for the business to access
finance to make investments. A situation known as a ‘crowding out ‘effect whereby banks would
rather without hesitation give credit to the government than businesses has been happening
recently. This is because these investment with the government are seen as safer, which is
increasing the cost of lending to private sector thereby reducing their borrowing. In addition to
this tremendous problem, the interest rates have also increased and access to credit has become a
difficult process for a company which has slowed down economic development.

Jubilee USA (2008) pointed out that debt had always been growing tremendous that at one point
14% of remaining balance had to split among sectors. The increase of high tax revenue has
affected the Zambian people and thus, reduced the economic development. As Zambians, we buy
a variety of things over the course of a month in which the price impacted has a number of
factors namely the cost of labour, the exchange rate and the cost of doing business such as taxes.
Since 2020, there has been overall inflation in which food prices have shoot up rapidly together
with the fuel prices which has made life of a Zambian citizen very difficult, for instance public
and private transport have become a challenge for an ordinary Zambian not forgetting that others
are even failing to eat twice a day because of high food prices.

As the Zambian government failed to pay its Eurobond this year becoming the first African
country to default on its loan, the economic development has been hit badly in which the debt
has tempered with the Zambian kwacha. Debt has a strong link to the stability of the kwacha,
which, in turn, impacts the everyday lives of customers through inflation. Over the last few
years, the government has been issuing bonds meaning it has been accepting loans to finance its
projects such as infrastructure like the turn-over bridges in the great east road. Foreign investors
buy government bonds in order to make money through interest payment but these investors are
becoming concerned with Zambia’s debt levels being unstable in which many are reducing
investment in government bonds. As buying bonds normally require converting foreign currency
to kwacha, demand for the kwacha keeps failing, contributing to the depreciation of kwacha
which has weakens the currency making importing goods more expensive, for instance as we
depend on import goods, the more there get expensive, the more we fail buying them thereby
affecting the growth of the economy.

One of the implications of debt on education development that can be brought forth is that the
debt has caused less or no funding to the education provision. As more money is been channelled
to debts, other sectors such as education that boost the economy are left out which is perilous to a
country like Zambia. This has resulted in situations in which the teacher to pupil ratio of 1 to 50
pupils and there is limited access to teaching aid and support infrastructure like desks. A lot of
schools especially in rural areas lack electricity and other essentials resulting in pupils having to
sit on bricks. The debt has caused pupils to drop out from school and in other cases it has made
teachers and lecturers to receive late salaries which have recently resulted into riots and go-slows
affecting the learning and development of education.

Education as a sector that increase the productivity of an existing labour force through human
capital is becoming more expensive every year due to the government introducing high school
fees which has been taken to help cut the education budget slowly without cutting actual
education services. This has affected poor families especially from rural areas who are failing to
pay for the fees. Overall inflation which has the food and fuel prices raised up, have affected the
education development for instance, every student like a university of Zambia student needs food
as a daily energy to carry on academic work and recently students have not been given their
allowances in time resulting in students rioting, and in terms of high fuel, the transport has
become quite expensive for an ordinary pupil to travel to faraway schools every day, these
actions have affected the education development.

In conclusion, a point derived from Mwila Kapindula (2019) we can say that the Country has
been accessing debt through non-concessional borrowing by bond issuance, private capital flows
from China, selling of securities to commercial bands and borrowing by state owned enterprises
from investors. In addition, CSO (2016) elaborated that most of the setbacks mainly originated
from declining copper prices. It is worth noticing that some of the loans are meant to close
perpetual deficits in the balance of payment current accounts. These factors have heavily affected
a developing country like Zambia bringing perilous implications on such developments like
economic and education.
 REFERENCE

Blakely, Edward J. and Bradshaw, Ted K. Planning Local Economic Development. Third Edition. Thousand
Oaks, California: Sage Publications, 2002.

CSO, 2016. 2015 Living Conditions Monitoring Survey. Lusaka: Central Statistical Office

Degefe, B., 1992. Growth and Foreign Debt: The Ethiopian Experience 1964-86. Nairobi: University
of Addis Ababa

Jubilee, Z., 2008. The Benefits and Challenges of Debt Cancellation in Zambia. Testimony submitted
to the Foreign Relations Committee of the United States Senate for Hearing, “Building on
International Debt Relief Initiatives. Lusaka.

Mwila G.K., 2019. The effects of external debt servicing on infrastructure spending in Zambia. A
dissertation submitted of the requirement for the degree of master of engineering in project
management. Lusaka: University of Zambia