Thoughts on Felix Mutati's appointment

President Edgar Lungu has started constituting his cabinet. On Wednesday he announced Felix Mutati as the new Minister of Finance. Mr. Mutati takes over from Alexander Bwalya Chikwanda who served in the role over the last five years. Many economists agree that Mr. Chikwanda's tenure was a disaster -- we lost count of the many policy flip flops that he presided over (remember the SI 55 and SI 33 debacle?). Even more devastating is the fact that the external debt stock increased four times during his tenure (see this graph). The fiscal deficit (a measure of revenue short-fall) went from 1% of GDP in 2011 to 7% of GDP in 2015 (see this graph). It's this latter mismanagement of the country's finances that's necessitated a re-engagement with the IMF for assistance.

In a piece for Quartz Africa last year, I calculated the country's revenue short-fall at about $1.9 billion. Bloomberg, in a piece published just before last August's elections and quoting the president's spokesperson, reported that the government will be seeking a loan of about $1.2 billion from the Fund. But this money won't come for free. It will require drastic expenditure cuts to reduce the fiscal deficit.

And this is where Mutati's appointment is incredibly important. He will have to negotiate, on behalf of the country, which parts of expenditure are to be trimmed down. Going by the IMF's history and its ideological underpinnings, the Fund will likely call for a drastic reduction in the types of expenditure that are incredibly important for the poor (subsidies to agriculture, education, etc...).

Following Mutati's appointment, many have questioned his ability to run the Ministry of Finance given that he's not an economist. I am much less worried about his training than I am about his ideological inclinations because this, more than anything else, will determine what Zambia looks like post-the IMF engagement. And here there's cause to worry.

Recall that Mr. Mutati has, for the most part of his political career, been a card carrying member of the Movement for Multiparty Democracy (MMD). And the MMD in the 1990s largely presided over the implementation of Structural Adjustment Policies (SAPs) in Zambia betraying the party's free-market inclinations. Frederick Chiluba, Zambia's first president under the MMD, was famous for quoting Adam Smith, he of the invisible hand mysticism. It is this party, with its ideological inclinations, that Felix Mutati joined early in the last decade culminating in his appointment as Commerce Minister in 2006. His job as Commerce Minister was largely to create an "enabling environment" for private sector (read: foreign capital) to flourish. And we shouldn't forget that Mr. Mutati currently believes he's the rightful head of the MMD.

Granted, MMD's policies moved slightly to left during Mwanawasa's tenure. For example, the incredibly successful Farmer Input Support Programme (FISP) was started under Mwanawasa's term. Discussions of a windfall tax on the copper mines were also started during this time. But the party still largely remained market-oriented in inclination. It is unimaginable, for example, that an Industrial Development Corporation would have been established under an MMD government.  

So given all this, I am less hopeful about the kind of role Mr. Mutati will play when those negotiations start. Will he, as a matter of principle, object to cuts on agricultural subsidies? Or will he agree to the cuts under the pretext that it's the practical thing to do? I can imagine that our "friends" in Washington are excited at the prospect of having to work with Mr. Mutati. (On issues of principle, recall that not too long ago Mr. Mutati endorsed Hakainde Hichilema's candidacy only to surprisingly change gear a few months later and endorsed Edgar Lungu).

I wish President Lungu had appointed a stubborn socialist as Minister of Finance given what's at stake here (think here of someone like the UPP's Dr Saviour Chishimba, abstracting for the moment from the constitutional issues around whether unsuccessful presidential candidates can serve in government). Yes, we need to cut back on some expenditure types. But a stubborn socialist would have given the IMF such a tough time that the only practical thing to do would have been to meet halfway.