US$1.25 billion Eurobond is another step to bankrupt the Zambian economy-Wynter Kabimba

Wynter Kabimba has said that PF under President Edgar Lungu is desperate to show that it had made progress on the infrastructure projects initiated by late President Michael Sata. In a statement released to the media, Mr Kabimba said the PF was looking for fresh money to cover up for its misuse and squander of the public resources that were previously mobilized.

He said over borrowing was an act of desperation that would ultimately bring Zambia to the verge of bankruptcy.

Commenting on the issuance of U$S1.25 billion Eurobond, Mr Kabimba said it would push the economy to a total external debt of U$S6.05 billion.

Mr Kabimba said U$S6.05 billion external debt would not be manageable given the weakness of the kwacha.

He said U$S750 million which was acquired in 2012 yielded 5.625 percent and the second issuance of U$S 1 billion was, in retrospect, a gamble.

Below is the full statement

POSITION OF THE RAINBOW PARTY ON THE ISSUANCE OF US$1.25 BILLION EUROBOND BY THE PATRIOTIC FRONT GOVERNMENT

On the 23rd July, 2015, the Patriotic Front (PF) led government recklessly issued a total of US$1.25 billion Eurobond, in another step to bankrupt the Zambian economy. This is the third international bond issuance within the four years that the PF has been in power and carries with it a hefty 9.375% interest! This is a much higher cost of borrowing compared to the previous 2 issuances as well as those from sovereigns as diverse as Kenya, Ethiopia, Rwanda, Ghana, Nigeria, Ivory Coast and Senegal.

In 2012, it made sense to issue the first US750 million 10-year note at a yield of just 5.625%. At that time the international commodity prices were high, interest rates were at their lowest, the country’s external reserves were relatively high, the GDP growth projections were favorable at around 7% and the country’s international rating was still acceptable. The Zambian people and the international lending institutions wholeheartedly supported that issuance because it was logical and made economic sense.

The second issuance in 2014 was, in retrospect, a gamble. This was a 10-year Eurobond of US$1 billion at 8.5% due for repayment in 2024. Last year, the country’s international rating had been downgraded, the budget deficit was increasing, external reserves were being depleted, no clear debt management plan was in a place and the overall fiscal discipline was deplorable. The higher interest rate by global standards of 8.5% was a clear signal that fund managers were no longer confident in the PF government’s ability to effectively manage the Zambian economy. It was in essence a cost and punishment meted on the tax payer of this country due to the gross incompetence of the PF government. The IMF and World Bank advised the PF government to be cautious in contracting expensive, commercial debt and pointed to the urgent need for a clear debt management strategy. This advice has fallen on deaf ears.

Despite the high cost to be incurred through the second Eurobond issuance, the PF government still went ahead to issue a third Eurobond. This amounts to a crime against the Zambian people. It is a sheer recklessness. The contextual facts that spoke against any further bond issuance are as follows:

1. The copper commodity prices are still low and with no prospects of a quick rebound. The export revenue base has therefore narrowed and debt repayment will therefore be a challenge.
2. The kwacha has drastically depreciated and is at its lowest level in decades. This has pushed the currency risks to unprecedented levels;
3. Fiscal discipline is at its lowest in Zambian history – with rampant high levels of non prioritised spending and corruption;
4. Next year’s pending elections is adding to the budgetary pressures and reducing the proportions of the Eurobond that will go into infrastructure spending.
5. The PF government does not have the capacity and discipline to quickly and efficiently utilize the funding and let alone adhere to the programmed use of the resources;
6. The requisite debt strategy and plan is not yet in place;
7. The whole world knows that the USA will soon raise its interest rate and this is inflating frontier yields – again, it is the wrong time to contract commercial debt.

This issuance is therefore neither in line with prudent debt management practices nor will it ensure a sustainable debt redemption profile. Why then would a government be that reckless and go ahead to make a decision that defies both economic and political logic?
First, the PF government under President Lungu is desperate to show that it has made progress on the infrastructure projects initiated by the late President Michael Sata. It is thus looking for fresh money to cover up for its misuse and squander of the public resources that were previously mobilized. It is an act of desperation that will ultimately bring this country on the verge of bankruptcy.

Secondly, the PF government views the Eurobond window as a potential cash cow to fund its 2016 election campaign as well as enrich the individual pockets of its leadership.

The Rainbow Party strongly condemns this short term and reckless behavior of the PF government. Just a decade after a Zambia campaigned and got international debt forgiveness, this government is pushing our country back into a dangerous habit of borrowing beyond the economy’s means. The third issuance pushes the economy to total external debt to $6.05 billion, or nearly a quarter of GDP, which is not manageable given the weakness of the kwacha and the above outlined negative developments. To the Zambian voters, the PF government MUST be stopped before it inflicts more damage and destroys the livelihoods of future generations. The way to do that is to rally around and vote for the Rainbow Party in 2016. There is still some room to redeem this economy from the incompetency of the PF government.

From the General Secretary of the Central Committee, Comrade Wynter M. Kabimba