Economics Association of Zambia President Lubinda Haabazoka says he fully supports government’s proposal to refinance the Eurobond using a Turkish private company.
Dr Haabazoka said what the Zambian government has proposed to refinance the Eurobond using private equity is 100% correct.
He said the Turkish company which has offered to pay the Eurobond is not a vulture fund.
“If it was a vulture fund, they could have bought our bonds on the capital markets (mind you we have no control on who buys our Eurobonds) then waited for us to default and then pounce on us. But they came in to help out,” Dr Haabazoka said.
Dr Haabazoka stayed that the terms on which refinancing is done are more favorable than the loan being refinanced.
Below is the full statement from Dr Haabazoka
I am very shocked that we are rising issues about loan refinancing when government has done it since independence.
When government issues treasury bills (which are short term notes sold at a discount of face value) some of the proceeds normally go to paying of government debt.
I spoke extensively about the negatives of Eurobonds when government announced plans to issue the first one but everyone called me an alarmist, an opposition carder or whatever.
What simply I wanted to advise then was that were were going to find ourselves in the situation we are in today.
If you have forgotten what I said about Eurobonds, please go to google and look up in the archives of the post newspaper. You will even find an estimate of how much money I calculated we needed to set aside per day to repay interest on Eurobonds.
But typical of us, you all brushed me aside.
When I mentioned that we needed to pay the principal amount at once, even Economics Professors called me to say stop lying to the masses! I kept to my story and we have all lived to see what I said!!!
But one thing I don’t want to be part of is crying over spilled beans! I always want to be part of the solution and not just cry about issues.
What government has proposed to refinance the Eurobond using private equity is 100% correct.
Imagine how much tax you need to pay to raise $3bn?
Imagine the damage to the economy if we defaulted on capital market debt (Eurobonds)
Some overzealous politicians even call for selling the Eurobond (which is actually refinancing) to Zambian citizens.
Do they understand the economic impact to the real sector of the economy if we withdrew $3bn from households at once?
Please if you don’t know economics, just sit aside and let experts deliberate.
No wonder we want to engage stakeholders to ensure that Economics Association of Zambia becomes statutory.
No people should masquerade as Economists and send false informational to the market.
So when the Zambian government gets equity from one company to repay the Eurobond, yes we still remain with the debt but the debt that we now acquire will be completely paid off with time.
With Eurobonds, the principal still remains.
The Turkish company is not a vulture fund.
If it was a vulture fund, they could have bought our bonds on the capital markets (mind you we have no control on who buys our Eurobonds) then waited for us to default and then pounce on us. But they came in to help out.
Mind you, experience has confirmed that terms on which refinancing is done are more favorable than the loan being refinanced.
My advise to government is that they entice the Turkish government to also join the refinancing so that the deal also has a public touch.
That way, you minimize misunderstandings during possible future debt restructuring.
So why did we start getting Eurobonds?
The idea of getting Eurobonds started under then Finance Minister Musokotwane during the MMD government.
Even the IMF and World Bank advised us to get Eurobonds!!!! ( that is why I no longer support an IMF package).
When we reached middle income status, donors pulled out.
They advised us to get a credit rating so that we could access funds on capital markets.
They said we are now mature enough to get that money.
They knew their citizens don’t have instruments to invest in.
They knew our bonds would give better interest than theirs because of the risk factor.
Imagine in some countries like Switzerland and Japan with negative lending rates?
If you get 5% on a note in the USA for a domestic bond then you are lucky.
Their plan is to ensure than when we fail to mobilize resources at once to repay the Eurobonds, so we go back and borrow more from them so that their citizens benefit.
This cycle can never end.
The USA debt is accumulating exactly the same way.
But they print dollars to repay the debt but we don’t have that luxury.
I hope you now see why I want home grown solutions.
So colleagues don’t join me into the politics of why why why!! Ours is to ensure we give sound economic policy direction.