The Construction of the $2bn Kafue Gorge Lower hydropower station, which was expected to start generating power this year, is stalled after Zesco failed to secure further financing.
According to Africa Confidential in its latest edition, Zesco had created a special purpose vehicle through which to borrow for the project, with more than $1.2bn already disbursed but that
Chinese insurer Sinosure has refused to underwrite a further loan, leaving the project in limbo.
The contractor, Sino Hydro, is also Chinese.
Sources dealing closely with the Chinese companies say that Zambia’s financial predicament is causing tension between them and their insurers and lenders.
Such is the quantity of Chinese debt that financial analysts say it should be the priority for restructuring, but apart from vague talk within the ministry, no progress has been made in this direction.
Finance Minister Bwalya Ng’andu wrote to several lenders in November to cancel the disbursement of funds in an effort to honour a pledge to stop the debt ballooning further, Africa Confidential has been told.
But the high-interest rates secured by the lenders because of Zambia’s poor credit rating means their appetite for lending continues.
After complaints to State House from lenders, Dr. Ng’andu has been forced to allow the disbursements to go ahead.
Political pressure on the bank for disbursements to continue regardless of the bank’s advice is a historical problem that is likely to persist.
While disbursements on new projects continue, others, such as Chinese-built roads and airports, have stalled because of delayed payments to contractors and shortages of financing.
However, Eurobond holders expect this to be done before Zambia attempts to restructure its $3bn debt to them.
The ruling Patriotic Front’s continued state of denial about the country’s dire debt situation sees the year begin with loan defaults, dwindling state revenues, disintegrating public services and unpaid civil service salaries.
The government’s failure to make a €6 million loan repayment on its military transport aircraft – one of a raft of delayed loan payments, including to Chinese lenders – signals immense pressure on the state coffers. Debt is expected to worsen this year and approach 100% of GDP.
The government has withheld all other payments, including public salaries, rather than miss a debt repayment.
But the government now has to foot the bill for millions of dollars of unplanned payments after becoming embroiled in expensive litigation and trying to alleviate politically dangerous power shortages.
The ostensibly stable state of the country’s foreign reserves, though extremely low, paint a misleading picture.
They remained at between US$1.3 and $1.4 billion last year, despite another year of heavy debt service payments.
The International Monetary Fund expects growth to have slowed to just 2% in 2019 and for the slump to continue owing to ‘absent policy adjustments.’
The current economic outlook leaves little hope that Zambia will be able to pay the $750m due in September 2022 for its first of three Eurobonds, so a restructure is imperative although it could come at heavy cost.
An IMF programme remains unlikely given the government’s determination to continue borrowing.