Zambia is facing tough questions over its foreign-debt levels from investors who think the real number may be more than double what the government has disclosed.
Lenders including Nomura Holdings Inc. believe the state has not completely come clean on its external debt.There is a growing concern Zambia may be headed for a similar situation to neighboring Mozambique, where hidden debts led to default as the government is seeking to restructure.
According to Peter Attard Montalto of Nomura International, “Zambia is in somewhat of a serious predicament of having politically connected additional ‘hidden’ loans”.
Officially, Zambia’s public debt in August 2017 stood at $ 12.45 billion, or 47% of gross domestic product.It has been the main stumbling block in securing a $1.3 billion loan from the International Monetary Fund due to doubts about its debt sustainability.
According to presidential spokesman Amos Chanda “Zambia will not go to the end of the world to pursue an IMF program, if not, it will continue with its own program, which is already producing results”.Still, Zambia is devising strategies to generate revenue internally.
That decision has led the tax administration to audit mining companies, hoping to rake in $ 7.9 billion.Authorities in February increased a liter of fuel to $ 1.41 cents.
Meanwhile, Investors are fretting that Zambia may have more debt than it’s let on have sent the nation’s Eurobonds tumbling.
Yields on the copper-producing country’s $1.25 billion amortizing bonds due in 2027 rose as much as 54 basis points, the most since February 2016, before paring the increase to 50 basis points by 4:35 p.m. in London.
At 8.45 percent, the yield was the highest in more than a year.
Banks including Nomura Holdings Inc. say the government may have greater tax liabilities than it’s made public.
That’s bad news for holders of Zambia’s dollar securities, which were already the worst performers in Africa year-to-date through the end of last week, losing 2.4 percent, according to the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index.
The risk is that Zambian bondholders could find themselves in a similar situation as investors in Mozambique, where hidden debts led to default and the government is seeking to restructure.
Zambia has been in talks for several months with the International Monetary Fund about a $1.3 billion bailout, but the two sides have failed to strike a deal, partly because of the Washington-based lender’s concerns about foreign borrowings.
Finance Minister Margaret Mwanakatwe said on Friday she was carrying out a debt sustainability analysis to move the IMF negotiations forward and also wants to “reprofile” $3 billion of outstanding Eurobonds.
The nation is already restructuring bilateral loans from Chinese state companies.