An Africa analyst at Eurasia Group says negotiations with the IMF over a long-delayed $1.3 billion loan are unlikely to produce a deal before the end of the year.
Ty McCormick wrote in a client note this week that Zambia’s external debt is likely higher than the official $8.7 billion figure.
“A planned review of the situation has been delayed and the results may not be made public. The risk of default is low in 2018, but will increase substantially in 2019 and 2020 absent a concerted effort to cut spending” and an IMF program,” the note said.
“President Edgar Lungu’s cash-strapped government has resisted the IMF’s calls to rein in spending. Lungu will probably continue to borrow and spend in the lead up to the election” in 2021. Debt figures “will likely be revised upward after the Finance Ministry completes its debt sustainability analysis,” expected in June.
“Nonetheless, this is not a Mozambique-style ‘hidden debt’ situation;” rather a “breakdown” of the debt-tracking process as individual ministries and parastals secured project financing.”
“Rising copper prices will provide a small cushion in the short term, but the government remains highly vulnerable to external shocks such as a slump in commodity prices or a drought that dents hydropower production and in turn hurts the mining sector”
The Kwacha extended its decline to a four-month low against the dollar and its Eurobond yields soared as loan talks with the International Monetary Fund stalled amid concern the country is under-reporting its external debt.