Bloomberg Business reports that Zambian dollar bonds fell, driving yields to an all-time high, after a credit-rating downgrade by Standard & Poor’s cast doubt over the government’s plans to sell its third Eurobond.
Yields on the southern African country’s $1 billion of debt due April 2024 climbed for a fifth day after S&P cut its assessment one step to B, five levels below investment grade and the lowest since S&P coverage started in March 2011. The slide in prices deepened losses for Zambian dollar notes, the worst performers last month among 58 emerging markets monitored by Bloomberg.
The administration of President Edgar Lungu is struggling to cope with declines in copper prices since taking office in January and a currency that has depreciated 15 percent this year. The government has signaled it may sell as much as $2 billion of Eurobonds to plug a budget deficit S&P estimates will swell to 10 percent of gross domestic product in 2015, higher than the state’s projection of at least 6 percent and the 7.7 percent shortfall forecast by the International Monetary Fund.
“They’re probably rethinking it, but at the end of the day they have no other funding whatsoever,” Celeste Fauconnier, an Africa analyst at Johannesburg-based Rand Merchant Bank, the investment banking unit of Africa’s largest lender by market value, said by phone.
“Investors will be a bit more wary of going into these issues, and if they do go into them, they’re obviously going to ask a premium.”
Election Spending
Yields on the 2024 notes increased seven basis points to 8.49 percent as of 3:36 p.m. in London, after earlier rising as high as 8.52 percent. An index of Zambian dollar bonds lost 5.5 percent in June, compared with an average decline of 1.7 percent in the Bloomberg USD Emerging Market Sovereign Bond Index. Zambia’s kwacha weakened as much as 0.5 percent before trimming losses to trade 0.2 percent down at 7.5227 per dollar.
The government may struggle to keep spending under control before elections in 2016, S&P said in a statement on Wednesday. Including debt payments, the budget gap is forecast by S&P to reach 14 percent of GDP.
Zambia will stick to its plan of cutting 5 billion kwacha ($665 million) of non-essential spending from its budget to keep debt under control, Finance Minister Alexander Chikwanda told reporters in Lusaka on Thursday.
“When you have scarce resources versus your vast needs, you have to learn fiscal prudence,” he said. “We’ll make sure we have fiscal prudence. We will cut our suit to the available cloth.”
Under Strain
The budget is coming under strain after Lungu, who took office after the death of his predecessor Michael Sata, agreed to scale back plans to increase taxes on mining companies. State revenue from mining may be as much as 50 percent lower than budgeted because of sliding output and uncertainty about the tariffs, S&P said.
A weakening currency may also add to the nation’s debt burden. Fitch Ratings warned on June 29 that interest payments on debt may surge to 17 percent of government revenue this year, up from 8 percent in 2012. Fitch rates Zambian debt at B, the same as S&P. Moody’s Investors Service has an assessment one level higher at B1. If authorities go ahead with the Eurobond plans, Zambia’s debt burden will increase to about 50 percent of GDP, S&P said.
“The vulnerability of the kwacha is a major issue on this front as a greater external debt load will mean currency risks become much more acute,” Gareth Brickman, an analyst at ETM Analytics in Johannesburg, said in a note to clients.
This is a gloomy outlook of the Zambian economy. The PF are taking us into deeper waters, our kwacha buying us less things than before. Load shedding will worsen the situation. Those with eyes, let them see that we are going nowhere under the PF govt.
Pabwato is sinking and taking the Nation down with it!
Be prepared for mealie meal at K1000+ again soon!
Yaluma, yesterday said the country has so far lost $116 million due to load shedding in only 2weeks. How much is the country going to lose to till the next rain season. Zambians we are doomed! We are been led by people who do not know whether they are going forward, static or backward. As we blog, President Edgar Lungu has no clue on how to approach the ZESCO disaster.
Mismanaged economy by incompetent leadership. Everything is hard and really hard. God help Zambia .
I wonder what his honour the Government Spokesperson has to say on this one. He will probably say something like this, “The author, whoever he is called is wrong, he is not offering any alternatives. After all, we are borrowing to complete on-going projects which our people, the voters are in need of! Besides, these rating institutions are not perfect in their assessments!”
This is beyond Kambwili’s comprehension. Any way it is sad to see that certain Zambians seem to be celebrating the situation as boon to their political tidings. But as they say it is always darkest before dawn. We have been there before and we will get out of it.
Beyond his comprehension, sure. But what you do you mean by “get out of it”?
Like THIS we have now is somehow “out of” the messes made before? More like the chickens coming home to roost if you ask me.
Ifintu ni Lungu, Continue voting for Lungu and his useless government. Zambians are like these teens you find in the west who engage in self-mutilation.
I shall vote for him. This is not an impossibility.
I would not blame illiterate villagers and call boys for still supporting bene PF and no vision Lungu because they do not understand this stuff and are appeased by a few bags of mealie meal and kwachas to influence their votes. But for the morons who come here declaring Lungu and PF are the best thing that ever happened to this country, words fail me because I truly cannot comprehend how you think.
Alexander Chikwanda’s old style economic theories are ruining our economy.Sata was wrong to bring his relative Chikwanda back in government.
Lungu should fire Chikwanda.
You are right there. Forget about PFs complaints that Lungu is getting rid of Sata’s legacy by retiring people like Uncle Alex. Some legacies are better done with.
This is beyond Kambwili’s comprehension. Any way it is sad to see that certain Zambians seem to be celebrating the situation as boon to their political tidings. But as they say it is always darkest before dawn. We have been there before and we will get out of it. Patriotism is more important that partisanship.
Indeed we have been there before and we will get out of it. Some people are cerebrating hoping that it will help their political ambitions or hate, the fact is it will NOT. Zambians will vote PF to ensure that PF demonstrates that it is possible to turn round. The borrowings are not for consumption but investments in infrastructure that we can see. You can see the roads if you don’t have eyes at least you will feel the smoothness of it. In additions borrowings are for companies like NCZ ZRL and ZESCO but not for running costs but more generation capacity, rail truck and equipment. That is what will turn round the economy not theories that don’t work.
@Sinazese Bullet – usually the intention is pure but the implementation always stinks. So far that infrastructure spending you are pointing to does not seem to have commensurate maintenance budgeting in terms of where funding to keep these infrastructure implementation afloat will come from. This is what always kills us. We already have a small tax base from where we could possibly maintain what we are creating. Maintaining archaic money collection strategies will soon blow in our faces – we cannot pretend anymore that we need new fiscal practices.
How does one celebrate when they know that they might spend their new term in office undoing this massive damage your PF has put us in at the expense of their own promises and agendas? Please PF cadres learn to think beyond cheap politics. The country is going down the drain, advice is given by opposition on how to do things and you chaps choose to be shallow. Come on!
Sinazeze, the infrastructure you are talking about, how will it return the monies being borrowed? You are building hospitals and universities which are expensive to run instead of ploughing these borrowings in revenue generating industries. PF does not have strategic thinkers or supporters. You have a bloated government with unnecessary deputy ministers and you say they are not borrowing for consumption?? Are you really this naive or you are just ignoring the obvious because you support PF and they can do no wrong? Why do you think we have been downgraded in these ratings?? It is because we are using these borrowings wrongly. It is not fiction but something we are seeing everyday.
Hahaha, what is ncz??? Nitrogen chemicals of zambia? Havent you heard it was turned into a warehouse? As for the roads if you are going to use them to transport imported goods then good luck. Industry is going down and cost of doing busiNES is up, don’t expect the persons who got us un this mess to take us out. You should really look at the economic indicators before ranting. Tell me about agriculture, isn’t our production heading south? The good part is the majority think like you, this should be of comfort to you.
The same time Chikwanda was blabbing that “bonds are performing above expectations”?
Can we know his expectations? 10% p.a.? 12.5%p.a.? 15%p.a.?
He meant 40%. He is used to UNIP inflation numbers.
Do not believe this guys.
It is the machinations of the imperialist CIA and its cronies. They are just jealous of the progress we are making under HE President Lungu. Our economy is doing better than theirs. They cannot fathom how!
During the times of President Sata when electricity exports were much lower, was he running foul of any of these now sacred agreements that cant be broken! It sounds very strange and to date no mention of how much has been raised form exports of electricity!
EURO BOND Gate – where is the the money??
” The administration of President Edgar Lungu is struggling to cope with declines in copper prices since taking office in January”.???
THIS IS A FLAT LIE. Copper prices are innocent.
The fact is Copper prices have NOT declined since 20th January 2015.
Anyone can easily verify this in seconds by looking at the copper price graph.
Simply go to —> www . lme . com/metals/non-ferrous/#tab2.
Then select price graph date range i.e. January 2015 to june 2015. For market select ‘Copper’. Then click ‘UPDATE’, and you will see a price graph showing that in mid January 2015 copper was selling at US$5,600/tonne, and on average rose to US$6,400/tonne by April 2015, and has now gone back where it was at US$5,600/tonne when Lungu took office.
@Cactus: you are perfectly correct. These are all PFoolish lies. Low copper prices, low water levels etc are all lies to justify their failure. Unfortunately reporters also merely regurgitate the lies without doing the quickest of fact checks.
We are all stupidity watching as PF destroys all that we had worked for.we need to act now or we will soon be sorry
CAN SOMEONE ASK THIS GUY TO TRANSLATE THIS INTO BEMBA FOR CHAGWA TO MAKE SENSE OUT OF IT
Zambians are just docile they are used to living in squalor. Difficult to make them understand technical things like this. Someone will say fintu ni lungu, someone else will say how many likes for HH. Too many uneducated folk some with degrees.
Hildah Malama
If indeed the government is serious in its
quest to fight corruption, it should ensure
that the following criminal cases are
investigated.
The serious criminal offenses which should
be investigated include the following:
1. Investigate the source of money that
President Edgar Lungu is dishing out to
electorates during the by elections since at
the time of the death for President Sata,
Lungu is reported by his close friends to
have only K24,000 in his bank account with
a credit of K5,000 from his beer friend whom
i chose to withhold his name.
2. The government should investigate the
source of money that Edgar Lungu is using
to gallop across the world like a mad horse,
leaving poor electorates in poverty.
3. Investigate the reason why Davies Chama
and other…
Throwing everything into winning by-elections sivintu. Ifintu is the economy. President Edgar Chagwa Lungu show us your brains in solving this economic quagmire, its long overdue.
Zambia has the most ill.iterate voters in the world; even when the economy is fast sinking, with all fundamentals along with increased load-shedding heading south, the PF has continued to kolopa all bye-elections.
Therefore, we deserve what we get – i.e. all these problems and more to come!
“The budget is coming under strain after Lungu, who took office after the death of his predecessor Michael Sata, agreed to scale back plans to increase taxes on mining companies”. Lungu received a lot of praise for this, but I guess the PF minions didnt see the net result. ok neither did I.
It could have cost many miners their jobs and who were you going to blame? Lungu of course. Blame should lie squarely on Alexander who made that budget without research.
Rejoicing at your country’s problems is very phoolish. You forget that if you destroy (I am sure the Upnd members who are in civil service are 24hrs busy on this) what are you going to use assuming ascend to power.
The problems came in because of PF. They created these problems because of being none-strategic thinkers with misplaced priorities. When things started to go South especially when Chikwanda started bringing in funny SI’s, HH and Nawakwi raised alarm and advised them that these policies would not work and would land the country in problems. Was this a celebration?? Chikwanda and PF threw out this advice through insults. So am not sure where you have seen people celebrating problems created by PF elo do not blame Chikwanda. Blame the people that appointed him and have retained him. OK?
Ba imbwa Unpd think that they have a magic bullet for declining commodity prices worldwide. It is not only copper that has been affected. Other commodities including agriculture have declined in prices. So what will HH do in such times. Do not cheat. We know all you want is make it as a first Tonga president unfortunately which will never happen. HH as Tonga want to be president not to provide economic solutions to Zambia but to make what he has been failing all along. All of a sudden one tribe in Zambia has become experts on economic issues which is a farce. Misleading everyone that when a Tonga becomes a president then all will become well. Wait 2016 bis coming, it will be not onlt KOLOPA BUT PUKUTA.COM. Mwe mbwa mwe
If only Mumba had allowed RB to perform in the January by-election as no one can deny that with the likes of Musokotwane his administration was much more competent at managing the economy than than PF but then gullible Zambians believed Membe’s propaganda in 2011 which led us to the situation we are in now.
PF IS A FAILD PROJECT.THEY MAY HAVE WON BY ELECTIONS BUT THAT DOES NOT MEAN THEY ARE LIKED THE BY THE MASSES OF OUR PEOPLE.THE REAL TEST WILL BE IN 2016.AM QUITE PLEASED THAT EVEN HIS OWN PEOPLE DO NOT AGREE WITH CHAGWA THAT HE SHOULD ILLEGALLY EXTEND HIS STAY IN POWER OTHERWISE THERE WILL BE NO ZAMBIA TO TALK ABOUT IF THIS MARON IS NOT STOPED AT THE BALLOT NEXT YEAR.AM ALSO HAPPY THAT LAZ HAS DECIDED TO JOIN THE CASE TO STOP THIS CHAP.
The current Greek crisis can be attributed to a lack of self-control: the Greek government borrowed more money than it could comfortably pay back. Borrowing money, unfortunately, is like using drugs: it feels good at first and feels bad later on. This makes it easy for borrowers to focus their attention on the pleasant present and put off thoughts about a future in which the only choices open to them are painful. This about sums up what Mr Sampa is on about. Docile Zambians will end up like Greece come 2024. Watch this space. Plagiarised this from someone who knows what he is talking about.
Don’t complain just suffer at least me am able to grow my maize and feed my Family God bless you
Zambia will stick to its plan of cutting 5 billion kwacha ($665 million) of non-essential spending from its budget to keep debt under control, Finance Minister Alexander Chikwanda told reporters in Lusaka on Thursday.
“When you have scarce resources versus your vast needs, you have to learn fiscal prudence,” he said. “We’ll make sure we have fiscal prudence. We will cut our suit to the available cloth.”
Since when did this Kolowe make any cuts to his budget? Since when did learn to be prudent and keep debt under control? If, it had not been for this Chibwi‘s addiction to borrowing, we would not be having this foolish conversation.
This is all the work of the ‘enemy’. He is everywhere and Zambians should be vigilant. One Zambia…….!!