Rating agency Fitch has warned that disagreements and prolonged negotiations with some official and private creditors over Zambia’s debt might push the eventual IMF deal into 2023.
It says the timelines issued by the Zambian government for the final IMF approval within first half of 2022 is optimistic.
It says Zambia has just conducted an IMF/World Bank Debt Sustainability Analysis (DSA) which will be the basis of discussions within the creditor committee.
The rating agency added that the outcome of the creditor committee will be enshrined in a memo of understanding (MOU) outlining a proposed debt treatment.
“Zambia will then approach its private creditors to negotiate debt treatment on comparable terms. The government’s announced timeline anticipates the formation of the creditor committee, agreement with private creditors, and final IMF Board approval of the ECF all within 1H22. Fitch believes that this timeline is optimistic,” it said in a note to investors.
It stated that disagreements among official creditors or prolonged negotiations with private creditors could push the date of an eventual agreement back into first half of 2022 or 2023.
“Fitch believes that a sizable debt treatment will be necessary to bring Zambia’s debt to a level deemed sustainable by the IMF and Zambia’s creditors. Total public sector stood at 108% of GDP at end-2021 and we expect it to fall below 100% by 2023, as Zambia narrows its primary deficit. However, we forecast debt to increase to just under 500% of government revenue in 2022, above the ‘B’/’C’/’D’ median of 328%.Of this amount, USD14.7 billion (59% of GDP) is external debt,” it said.
It says, “Eurobonds account for USD3 billion of Zambia’s debt, a high percentage of debt compared to other countries going through CF restructuring. The possibility of Eurobond holders rejecting the MOU’s terms brings risks to the timeline. Zambia has an additional USD4 billion in contracted but undisbursed debt, which is not included in the debt stock. Fitch expects about half of this contracted debt to be negotiated away.”
The ‘CCC’ rating reflects that the government has continued to service its local-currency debt and has not announced any plans to restructure domestic debt as part of the CF.
Domestic banks and other institutions hold the majority of outstanding domestic debt; although the stock of non-resident investment increased in 2020 and 2021 and is now 28% of the total.
A domestic debt restructuring could create additional liabilities to the government, making it counterproductive.
However, the domestic debt stock is large at ZMW197 billion (48% of GDP). The size of the necessary overall debt treatment, as well as the size of the necessary fiscal adjustment, mean that sizable risks to domestic debt will persist.
And Fitch Ratings has affirmed Zambia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘RD’ and has also affirmed the Long-Term Local-Currency (LTLC) IDR at ‘CCC’.
“The ‘RD’ rating reflects that Zambia has not serviced the bulk of its outstanding external debt since failing to make a Eurobond interest payment in October 2020. Subsequently, the government announced that it would stop servicing all of its external debt, excluding some priority project loans, and applied for debt relief under the G20 Common Framework (CF). In December 2021, the government reached staff-level agreement on an IMF programme, which clears the way for convening of an official bilateral creditor committee to discuss potential debt treatments.”
It says the affirmation of Zambia’s ‘CCC’ LTLC IDR reflects that the government continues to service its local-currency debt.
And on the foreign reserves, Fifth says a combination of higher copper export receipts and financial account inflows have improved Zambia’s international reserves position.
“We forecast reserves to reach USD2.9 billion, or 3.6 months of current external payments (CXP) at end-2022, up from 3.4 months of CXP at end-2020. If the IMF Board approves the ECF, disbursements from the IMF and other multilateral lenders would further bolster reserves.”
“However, higher import prices will contribute to a narrowing of the current account surplus in 2022 and the eventual resumption of debt servicing will contribute to falling reserves in 2023.”
Fitch expects real GDP growth of 3.3% in 2021 and expect medium-term growth of approximately 3%.
“Inflationary pressures will increase along with high global commodity prices, as the government has ended its explicit fuel subsidy as part of its IMF programme. However, fuel prices are still regulated by the government and the government could delay hiking fuel prices, with resultant losses falling on its balance sheet.”
It says the government will also face higher costs for its fertiliser subsidies through the Farmer Income Support Programme.
“The need to tighten monetary policy would put additional pressure on domestic government borrowing. The government’s increased call on domestic debt markets have crowded out private sector credit, which we forecast to remain in negative”.
Not surprising the IMF deal is delayed, with this indecisive government not meeting the deal conditions. They really think that IMF will give them $1.3b without any conditions? How amateurish…….
I think it’s the approach that’s wrong. Definitely, commercial and non commercial lenders can’t be put on the same negotiating table because their interests and commitments are different. Zambia must find ways to deal with the commercial debt, I don’t think we absolutely don’t have any resources to address that aspect of the debt. Nkongole ni kulipila. It’s the bilateral debt that is likely to be rescheduled
Nyu Doni!!!! Yaaba
Thank you to the PF for messing up our once vibrant economy… destroying is very easy but repairing and rebuilding takes a long time….. how many times are our debts going to be forgiven ???
That is why the New Dawn Government Communications function must be shaken up to explain clearly to the citizens exactly what is going on so they know that the pain they are enduring now was caused by the PF.Yes,New Dawn are in charge but the serious damage can NOT be wished away unfortunately,there is no magic wand…
YES THE ROAD AHEAD IS GOING TO BE HARD
BUT EVERY LEVEL HEADED PERSON KNOWS WHERE THIS MESS STARTED
THE TIME OF DEBT RIGHT OFFS HAS GONE AND THAT WAS WHAT PREVIUOS ADMINISTRATION WERE BANKING ON
WE HAVE TO TAKE RESPONSIBILITY FOR OUR ACTIONS FINALLY
CROCODILE TEARS WONT WORK ANYMORE
Meaning current government got it all wrong for the projected timeline to bring the economy under control. From this report what I’m taking is that the measures taken are not likely going to bring investor confidence to the fore. The tax holidays bestowed upon mining houses is overly optimistic and a round about approach to curing the economy. Please revisit this tax holiday policy. Zambia is resource rich and let the resources work for the country. I’m sure Kagame, being smart highlighted this behind doors, during his visit to Zambia couple of weeks ago.
Then you have some PF monkies jumping and singing ati…………
“There’s no development without borrowing…….”
” every country borrows……..”
Monkies in a maize field for sure……..
#4 says “Thank you to the PF for messing up our once vibrant economy… destroying is very easy but repairing and rebuilding takes a long time….. how many times are our debts going to be forgiven ???
That is why the New Dawn Government Communications function must be shaken up to explain clearly to the citizens exactly what is going on so they know that the pain they are enduring now was caused by the PF.Yes,New Dawn are in charge but the serious damage can NOT be wished away unfortunately,there is no magic wand…”
I say, Bally has the 10 points Plan, he will fix this!
IWE SPAKA MONKEY, THE OTHER DAY IT WAS REPORTED THAT UK OWES CREDITORS 2.2 TRILLION POUNDS, RUSSIA WAS ALMOST RECENTLY DEFAULTING ON THE SAME DEBT, AMERICA OWES CHINA BILLIONS. THE WHITE MAN HAS A LANGUAGE FOR YOU DULL AFRICANS, THEY KNOW YOU CAN NEVER DEVELOP WITHOUT BORROWING. THEY HAVE RECENTLY ANNOUNCED THEY ARE MOBILIZING OVER A BILLION DOLLARS IN AID TO UKRAINE (ONE OF THEIR OWN). RESTRUCTURE GOVT, GET BACK THE MRT GIVEN FREELY TO THEM MINES (OVER A BILLION DOLLARS LOST IN ONE YEAR) AND THERE WILL BE NO NEED TO BEG FOR THE THE K1.4B USD TO BE GIVEN TO ZAMBIA OVER A SPACE OF 3 YEARS. WHEN PEOPLE AND NATIONS SAY NO COUNTRY HAS EVER DEVELOPED UNDER IMF, YOU THINK ITS FOR F-KO? THE IMF CHIEF HAD SAID ‘ YOU THINK IMF IS YOUR GRAND MOTHERS SHOP’ AND SHE WAS DAMN RIGHT. WHY DO WE STILL…
It should be a surprise we could achieved closure and debt restructuring like Argentina or Ecuador. Having an IMF deal is important towards that how and in discussion with official creditors it’s a requirement also by the G20 common framework that is much demanding than the IMF Build on lizard and achieve closure before the spring the fitch here and kabushi are to the point The point is to see the initiatives and other restructuring methods that will achieve better and ow the cost to the people but so far the minister should focus on achieving this in addition to performing the productivity or growth in sectors that is what matters and important
Okay
#9 THE REAL ZAMBIAN
April 12, 2022 At 11:04 am
“IWE SPAKA MONKEY, THE OTHER DAY IT WAS REPORTED THAT UK OWES CREDITORS 2.2 TRILLION POUNDS, RUSSIA WAS ALMOST RECENTLY DEFAULTING ON THE SAME DEBT, AMERICA OWES CHINA BILLIONS. THE WHITE MAN HAS A LANGUAGE FOR YOU DULL……..”
What you conveniently do not mention is that those countries you mention manufacture everything, from space craft to fighter jets………..
And zambia imports almost everything………
There’s an African saying………
” when you see an elephant crossing a deep river………
Not all animals can cross the same river…..”
When you put monies in a maizefield , they don’t know when to stop stealing……
Same with the PF, they did not know when to stop borrowing
This doesnt sound good, and Mr. Situmbeko must inform the nation what is going on, otherwise tu PF, will start their propaganda machinery. Notice that they are NOT commenting on this article, because it has touched their blackspot. They will be back tomorrow.
Zambians will NEVER vote back PF, as long as this DEBT issue remain unresolved by UPND GRZ. But you have dull PF leaders in Lusambo, who was even protesting against IMF, without knowing , that strategically. PF will be better of if Zambia manages to clinch a deal with IMF and other creditors.
UPND should not sit back quiete on this one, they need to clarify and explain fullout.
All this restricted default rating mess was caused by PF poor governance regime. When we say PF thieves should not be entertained in any way as they cry witch hunt, political persecution, tribal targeting etc. NO NO NO no these are thieves who should be in jail.
“domestic debt stock is large at ZMW197 billion (48% of GDP)”
““Eurobonds account for USD3 billion of Zambia’s debt, a high percentage of debt compared to other countries going through CF restructuring”
THE PF REALLY RUINED ZAMBIAS ECONOMY WITH UNSUSTAINABLE DEBT
If IMF Ignores social media from Zambia they’ll fall in the category of Predatory lending.
“Irresponsible lending occurs when a lender is unscrupulous with the lending and provides loans inappropriately. For instance, if they do not obtain enough information about income and expenses. If this was the case with your loan, you can make a claim for a refund.”
GRZ What’s going on?
When Liverpool plays Manchester City the coaches normally will say that the match will be tough. Unfortunately our Upnd displayed unresearched confidence on how easy it was going to turn our economy around even within hours. This confidence spilled down to the general population who believed in the international connections the Upnd leadership had would make this possible. As a Zambian who’s facing difficulties in daily life I would want the governmet to succeed. This should be a warning to politicians that they must know exactly what they are going to inherit instead of promising Heaven on Earth.