The Zambia Institute for Policy Analysis and Research has warned Zambia would do well to put in place a sound, forward-looking, and comprehensive debt-management structure to ensure that Zambia’s sovereign-bond issues does not turn into a financial disaster.

In her submission to the Parliamentary Estimates Committee, ZIPAR Executive Director Dr Pamela Kabaso said despite the diversification ‘song’ away from copper, most of the country’s export earnings are still from copper.Dr Kabaso warned that a collapse of copper prices will have adverse impact on Zambia’s ability to repay loans.

She observed that a deterioration of other macroeconomic fundamentals may lead to the credit rating agencies downgrading the country’s rating, thereby increasing the cost of borrowing.Dr Kabaso advised that Zambia need not only borrow to invest the proceeds in the right type of high-return projects, but also need to ensure that it does not have to borrow further just to service the debt.

Parliament must play the critical role of ensuring accountability and transparency in loan contraction and debt management processes.


She added that the containment of the fiscal deficits is undoubtedly difficult to achieve due to the limited revenue base, large interest payments, huge expenditure on public service salaries and pensions.

The ZIPAR Chief said bringing down the fiscal deficit to 3 percent of GDP in the near future requires a strong resolve on the part of the Government to undertake reforms and to spend public money carefully which she said is especially unlikely in the months ahead until after the 2016 elections.

And Dr Kabaso has suggested that Government should consider establishing a sinking fund through which government will systematically set aside resources to pay against the principal, along with each interest payment.

‘Given market risks such as interest rate and exchange rate volatility inherent with borrowing from the international capital markets, debt servicing could be expensive and unsustainable making default more likely,’ Dr Kabaso said.

‘Government should consider establishing a sinking fund through which government will systematically set aside resources to pay against the principal, along with each interest payment. This will reduce the bullet principal payments that would have to be paid in 2022 and 2024 for the two sovereign bonds, and therefore reduce the risk of default,’ she stated.

Dr Kabaso also called on Parliament to enhance oversight role over loan contraction and management in the country.

‘Parliament must play the critical role of ensuring accountability and transparency in loan contraction and debt management processes. They should mitigate against the risks of excessive borrowing by reinforcing the countervailing mechanisms of government accountability and legislative scrutiny, and exert pressure on the executive to improve fiscal and budgetary performance,’ Dr Kabaso said.
She added, ‘All public loan contraction and debt management rules and regulations must be anchored on constitutional provisions defining how public loans must be obtained, used and serviced in addition to other precise pieces of legislation. The Legislature should by law approve loans before contracts are signed.’

‘This will enable and ensure that the loan contraction process is done within the established guidelines and laws, and can be serviced within the national budget. The legal framework should explicitly mention adherence to a debt strategy consistent with broad macroeconomic policy.’

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23 COMMENTS

  1. Guys,
    We need a paradigm shift in investment.
    The government needs to boost small scale farming. With abundant food to feed the populace, excess from agriculture, mining, manufacturing can be exported. Agriculture and manufacturing to regional markets and mining to international markets. The government needs to reduce the threshold to get into Zambia as a foreign investor from $300 000. That way, people like myself can bring our $60 000 and start food production, knitting, metal smiting businesses. In addition to feeding the nation and aiding export, we will provide employment.
    President Lungu, please give it a thought. I know your advisers read these blogs.
    Thanks.

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    • Ati unprecedented development! My foot! Any half brained person can put $8 billion into some few roads and other infrastructure around the country and pockets half of it. Then that becomes the basis for re-electing a visionless government into power. We will see how they will pay back the interest let alone the principal. We need a serious audit or better still a commission of inquiry into RDA to justify the expenditure over the infrastructure on the ground.

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    • This article is too complicated for” ifintu ni Lungu people. We are still in honeymoon period , the consequences of the stupidity of his win are yet to be felt.

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    • Too bad the advice is being given to people with less appreciation of true economic management skills. All they know best is borrowing and violence. Borrowing from the open market is a risk business for a country which has a lot yet to be in place, in form of controls at the spending point. Zambians will have to prepare for hard landing soon, unless some people decide to embrace advice from those they like least. Recall the good rating Zambia has been getting in the recent past is all to Levy’s hard work and long term vision 2030.

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  2. Your advice has come rather late because it has already been mismanaged by CNP. How do you invest in non-financially viable projects like Rail-way Systemes of Zambia and Kafue Nitrogen Chemicals

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  3. I fail to understand why someone would think of a title like this “Zambia headed for financial disaster if Eurobonds are mismanaged”. Bshit at its best. How can a country financially collapse because they borrowed $750 million? This is less than $1 billion and surely Zambia should face disaster for borrowing those peanuts when we know that our GDP now has sky rocketed to unprecedented levels. Whoever wrote that title is dull, very thick headed and needs to go back to school. That’s just turn over for one mining company (Lumwana) if not even less. What about the money from the other mining companies? We need to borrow more especially that we need to improve infrastructure once and for all for many years to come. Must be UPND chaps.

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  4. The one-stop route is to simply flute indeginous investment by giving dual citizenship to ALL zambians in the diaspora who wish it, guaranteeing the sanctity of their investments and involving them in the Vision Zambia 2064 as technocrats…it can be done – WILL and HONESTY are the key…

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  5. Good ideas its not too late to implement them. We just need a listening government. Please this time around we need a government that would bring healing to our economy.

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    • 50 years down the line and it will never happen. Politicians have cut off their ears and used them to cover their eyes.

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  6. How can a country head for disaster just for borrowing $750 million which is even less than a $1 billion. This is less than after tax profit for KCM. Wakeup man still sleeping.

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    • PK…..wht professional are you man/woman you sound diabolic and foolish. This debt by ‘Sata’ Govt has to be contracted so that it shrinks. That man really mismanaged the Economy and we need vibrant men and women to run our Country this Lungu is taking us nowhere.

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    • how is it just $750m when miles sampa went to issue another bond of $1bn? these pf cadres will perish with ignorance

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    • You are so ignorant Mr.Zambia has accumulated $2 billion in foreign debt and close to $3 billion in domestic debt which comes to a total of abour $5 billion.The Foreign debt is going at an interest rate of 8.7% and the domestic debt at an interest of 16.5% which are going to be paid every year for 10yrs and 12yrs respectively starting from 2012.Meaning by the end of this period we’ll have paid close to $12 billion that is interest plus principal.Wake up Mr it seems you have been sleeping or docile all this while.

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  7. We have a president who doesn’t care about the whole economic thing, what matters to him is being in state house. To start with, if he was serious he should have done away with Chikwanda, the 1960’s economist who only cares about the cuts he gets from under the table deals he makes! PF Govt has no political will of properly managing the economy, all they care about is lining their pockets! That’s how useless these semi illiterates are! What change or developed can cadres such as mwaliteta, a form 3, bring in terms of economic development!

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    • Mostly it is ministers with the first degree & above who have let down Zambia. How many ministers have at least the first degree in the previous cabinet? We have seen Form 3s and PHD holders succeed or fail. The attitude we have towards people who do not have academic degree, cooks, cleaners, grave diggers, sweepers, peasant farmers etc. is terrible. We need one another to build our economy. People should be appointed on the ability or merit to perform work. Some fellow bloggers have said, he/she is just a cleaner overseas. It is not a shame to be a cleaner or an engineer overseas or in Zambia. If being a cleaner overseas can pay me more money and facilitate, good health, education for my kids than being an engineer or a cleaner in Zambia, yes, I would absolutely take that job…

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  8. I voted for EL, am watching if this current of governance go on without any checks, sorry am switching camp.

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  9. Those 1960 economists have a wealth of knowledge and experience that is being tapped in. For some people it’s history to read about, for some they lived through a time when copper prices fell, when the oil bill was astronomical and when belts were tightened by Zambians to a point of starvation. History is cyclical! Zambia is still landlocked, and that will never change, the Zambian economy has not been diversified even after 50 years of political. Therefore those 1960 economists offer strategies and options which are useful. Intelligent and wise people make use of experience and do not discard it.
    Where has this hatred for senior members of our society come from? Do you know who you are writing about and their net worth is?

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  10. There is no need to complain on PF government especially you some of us(the so called educated for no good), you do not participate in any election. The kaponyas make decisions for you, shame on and shut up. No employment until you reach retirement age!!!

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  11. @joan! tell the nation what 1960 economics has done to the economy of Zambia from the time the Chikwanda you are praising became finance minister apart from endless reckless, irresponsible borrowing! Chikwanda might have the ill gotten wealth which if he is honest enough cannot even brag about! I have worked hard in my life and it is not important to waste my time telling you my net worth. Am not starving far from it but am speaking on behalf of the majority my people who live in the country of my birth from whom your Chikwanda stole from to create his fantasy dream to come true! Please don’t annoy some of us even more or I l end up insulting people who brought you on this earth through brutal rape!

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  12. “If Euro bonds are mismanaged”? Mwaile kwisa imwe ba mayo? The cat is already out the bag, Dr Pamela Kabaso, did you not hear that Zambia Railways has depleted their share? If ZESCO has not utilised its share, chances are that it will or has already been taken back into government coffers to finance the deficit, which is just another form of inkongole to be paid back at some point anyway.

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  13. Iwe ka Kalonga naka Mike, mulitupuba. Is $5 billion a colossal sum of money by any standards for a country? South Africa spends over $6 billion annually on education alone and you are busy screaming over $ 5 billion for the whole country. Ukukana shibe ndalama mwetumafontinimwe!! Sha!

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    • $8 billion yabene, kaloba. South Africa spends own money, has capacity and institutional capacity to manage debt.

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