The proposed Eurobond refinancing strategy, if concluded by end of 2017, may escalate the total national debt from the current US$11.7 billion to approximately US$19.2 billion. Using 2014 GDP values, this means the total national debt in 2017, as a percentage of GDP is likely to rise from the current 47% to 68%.
However, if our estimate of GDP for 2016 is confirmed at US$21 billion, then the total national debt as a percentage of GDP is likely to rise from the current 47% to approximately 91% in 2017. Our economic performance estimates for the country for 2016 suggest likely shrink of GDP by approximately 18% relative to 2014.
Here is our analysis of the refinancing strategy: Government has announced plans to re-finance three Eurobonds totaling $2.8 billion that it issued between 2012 and 2015. The first Eurobond issued in 2012 was worth US$750 million; the second one issued in 2014 was worth US$1 billion and the last issued in 2015 was worth US$1.25 billion.
The external debt stock, minus interest, has risen to US$6.7 billion while the domestic debt is around US$3 billion. Interest on both the external and internal debt is around US$2.7 billion. Therefore the total national debt, inclusive interest, is sitting around US$11.7 billion.
What therefore will be the implications of the proposed US$2.8 billion Eurobond refinancing strategy on the total national debt?
The first implication is that if Government manages to get bond subscription of US$2.8 billion, and if this whole money gotten is used to pay off the entire Eurobond principal (i.e. US$2.8 billion), then the only liability remaining from 2012-2015 Eurobonds will be interest repayments averaging US$270 million per year up to 2026.
The second implication is that Government will not run the risk of defaulting full payments in 2022, 2024 and 2025……so provides a pseudo picture of a “good borrower”, who “deserves more loans” and on this premise, Government plans to borrow another US$3 billion with a longer repayment period.This means the total debt, without interest, consequent to the refinancing strategy will be US$5.8 billion. This debt will accrue between US$4.5-5.5 billion interest by 2030 to 2035. In a nutshell, including interest, the proposed refinancing will cost Zambians not less than US$10.3 billion by maturity time (10-15 years).
The third implication is that, if the two transactions are concluded in in 2017, the total national debt will rise from the current US$11.7 billion to approximately US$19.2 billion. Using 2014 GDP values, this means the total national debt in 2017, as a percentage of GDP will be rise from the current 47% to 68%.
However, if our estimate of GDP for 2016 is confirmed at US$21 billion, because of the approximately 18% shrink of the economy relative to 2014 as indicated above, then the total national debt as a percentage of GDP will rise from the current 47% to approximately 91% in 2017.
As we have said before, and we repeat, the best refinancing strategy for Eurobonds is the Green Party US$36 billion marijuana industrialization strategy. The rest will just worsen the situation. We need to grow the economy, and end poverty, from our own resources instead of borrowing. Borrowing is not sustainable because it will just end up enslaving our future generations.
Green Party of Zambia