Is Minister Kaingu trying to tell us that government is broke?

This week, the Minister of Higher Education Dr Michael Kaingu announced that government would scrap off the payment of meal allowances (popularly known as “BC”) to students at the University of Zambia (UNZA) and the Copperbelt University (CBU). According to him, the government had decided to withdraw the allowance because it “has been abused and that it has over the years been a source of unrest at the two universities”. Meal allowances have been an institution at the two universities and I was lucky to get “BC” during the time I studied at UNZA. Life would have been unimaginably difficult without BC, coming as it did at a time when there was great financial uncertainty for my family. That's my wife's story too. And my sisters' story and countless others who have benefitted from BC over the years and gone on to join the ranks of tax paying citizens.

My point here is not to debate the Minister’s reasons for scrapping off the allowance, even though he doesn’t provide any evidence for his assertion. For instance, is he saying that the payment of meal allowance leads to unrest (for example, cash flash students go get drunk and then throw stones at cars)? Or is he saying that students become unruly when the meal allowance is not paid on time? The conclusions one can draw are radically different depending on what’s causing what. Nor do I want to debate the legality of the decision he’s taken. Others have done so. Nor do I want to be roped into a debate about the unfairness of having few students obtain meal allowances when students at other colleges and universities aren’t doing so. Of course it's unfair that only a minority of students in the country get the allowance. But scrapping it off for everybody is a terrible type of equality - it meets the fairness principle but most people, when pushed, would see that this is undesirable. Instead we should achieve equality by moving in the other direction: making sure that every student gets the allowance. But that’s a post for another day.     

What I want to point out here is that the government’s decision says something about the country's fiscal situation. The decision is controversial if not unpopular (have a look at the commentary on social media). So why would a government announce what appears to be an unpopular decision a few months before a general election? Election years are for dishing out largesse not scrapping it off.

The only answer I can think of is that the government’s finances are currently stretched. Have a look at the figure below that tracks annual interest payments on the country’s outstanding stock of domestic and external debt from 2012 to 2016.  

Source: Budget Speeches

The interest payments are in billions of Kwacha (the rebased currency).* Notice that in 2012, total debt service payments (both domestic and external) were budgeted at K3.1bn. By 2016, the amount budgeted for external debt (K3.6bn) and domestic debt (K3.5bn) are each, on their own, greater than the total budgeted for 2012! That is, total debt service payments between 2012 and 2016 have grown by an incredible 120% (with the external portion growing at 150% and the domestic portion growing at 105%). Also notice that 2016 is the first year where external debt service payments are greater than domestic debt payments – itself a reflection of the growing importance of external debt in our total debt stock. Lastly, notice the incredible steep rise in external debt service payments between 2015 (K2.4bn) and 2016 (K3.6bn). That is, an increase of K1.2bn in a single year! Wow. Even more daunting if you remember that external debt service payments are made in foreign currency.  

Now according to the 2016 budget, the total budgeted for “Student Loans and Bursaries” is K310million (this is a total figure that includes the meal allowance). It is far less complicated to cut funding to this or that social service than to miss an interest payment when a government is debt stressed (there’s actually academic evidence showing this). Missing an interest payment screams loud and clear that you are broke. You can't spin this any other way. On the other hand, you can spin cutting back social spending by simply saying that it was being wasted or it encouraged unruly behaviour (after all, who hasn't heard of the entitled car-smashing students). 

The money originally meant for student loans and bursaries doesn’t, however, come close to plugging the fiscal hole. Implication: Times ahead are gonna be tough. 

* The numbers presented here are in nominal terms. The distinction, in my opinion, between real and nominal doesn't matter so much here because inflation has been quite low over the period covered - the uptick in inflation only happened towards the end of last year after the budget for the current cycle had already been announced.