By Wakumelo Mataa CTPD Researcher
Zambia’s economy has continued to experience serious macro-economic challenges, aggravated by the COVID-19 crisis on one hand and the debt situation on the other. According to the Ministry of Finance (MoF), the country’s external debt increased to US$11.97 billion at end June 2020 from US$11.48 billion at end 2019.
The fiscal situation has continued to deteriorate as external debt repayments continue to increase, premised on the sustained depreciation of the Zambian Kwacha against the United States dollar. To address the debt situation, MoF begun the process of engaging all creditors to seek their approval for suspension of debt service payments for a period of six months in accordance with the terms of the G20 and Paris Club Debt Service Suspension Initiative (DSSI). Feedback from the bondholders is expected during MoF’s meetings with the note holders scheduled for Friday, 13 th November, 2020.
It is our considered view as the Centre for Trade Policy and Development (CTPD) that the decision of the bondholders will, to a large extent, be influenced by the creditor’s level of confidence in Zambia’s debt transparency and the way Government proposes to deal with the debt situation. It is expected that, being major creditors, China’s recent willingness to grant a debt relief will be crucial to the decision of the bondholders as they will most likely take into consideration, the lack of publicly available information on the terms and conditions of Chinese loans.
We find it progressive that Government through the Ministry of Finance has reportedly reached an agreement with the China Development Bank (CDB) to defer debt service in respect of a commercial loan facility. We however remain greatly concerned that the MoF makes no mention of the amount of the loan(s) in question as this would have helped quantify the amount of relief given. Moreover, there are still serious concerns about the actual scale of the debt that Zambia owes China.
Furthermore, it is our expectation that the bondholders will be looking forward to a clear and realistic economic recovery plan. In this regard, Government will be expected to be emphatic on what it intends to do within the relief period that will point the economy towards recovery and restore debt sustainability. It is imperative that Government commits to prudent utilization of the resources that may be freed up from this initiative should this request pull through, directing a larger part of the
resources into productive sectors. It will be sad for Zambia if the creditors reject the request for relief as this will mean that Zambia has defaulted on its debt obligations that were due on the 13 th of October, 2020.
We find it contradictory that, while we have based our request for debt service relief on the devastating economic impacts of the COVID-19 pandemic, the latest auditor general’s report reveals serious irregularities in the usage of funds intended to mitigate its impacts on the economy. It therefore cannot be over-emphasized that Government needs to be more serious if its intentions are to be trusted as it engages with our creditors. There is need to ensure logical consistence in Government’s understanding and appreciation of the prevailing macro-economic problems and consequently, in coming up with solutions to resolve them.
It is imperative to note that Zambia’s Bondholders may also be concerned about the political economy going into the 2021 general elections as this has seemingly made Government reluctant to slow-down on the ambitious infrastructure and policy reform agenda. Should the bondholders reject Zambia’s DSSI request, there will be a negative impact on social spending implying that less funds will be available to spend on initiatives that help reduce poverty or support job creation in the country due to higher interest payments on increased debt.
Oh no, president Lungu told Zambians he had secured a moratorium of one month to pay the bondholders and the Chinese gave him the money to pay this November 2020. So, now should just pay the debt. The concerns of disclosure of the actual scale of the debt Zambia owes to China should be made public is of interest to Multilateral cooperating partners and should not be ignored. It is this disclosure that underpins the basis on which discussion of debt relief can be premised. Zambia should not be embarrassed every time with default to creditors by the humble leader.
Bondholders are in business, just pay them and not continue dithering, not even responding to phone calls – shameful attitude. Just pay.
we were told everything that the ministry of finance had established a sink fund to pay the euro-bonds and that those of us who are saying Zambia will default are F.ools
So why not pay the $42m you have failed to pay from the fund? This was 2 years ago when you claimed you started the sink fund.
The chickens have come home to roost
“I want to state categorically that the PF (Patriotic Front) government has not and will not default on any of its external debt. We will ensure that every month when it’s time to pay the debt, we will pay. When it’s time to pay the Eurobond bond we will pay,” she said.
The minister further dispelled rumours that Zambia has lost some of its sovereign assets, including power company ZESCO, and the national broadcaster, Zambia National Broadcasting Corporation (ZBC), and the national international airport, the Kenneth Kaunda (KK) International Airport.
Mwanakatwe in early 2018
“I want to state categorically that the PF (Patriotic Front) government has not and will not default on any of its external debt. We will ensure that every month when it’s time to pay the debt, we will pay. When it’s time to pay the Eurobond bond we will pay,” she said.
The minister further dispelled rumours that Zambia has lost some of its sovereign assets, including power company ZESCO, and the national broadcaster, Zambia National Broadcasting Corporation (ZBC), and the national international airport, the Kenneth Kaunda (KK) International Airport.
Mwanakatwe in early 2018
Tell us now
The Centre for Trade and Policy Development (CTPD) and the Economist Intelligence Unit (EIU) are among critics that argue that Zambia risked defaulting on the impending Euro bond repayment in the next three years, claiming that relations with creditors were on the wane because of the increased debt portfolio.
Financial analyst Trevor Hambayi in his recent case study argued that Zambia’s debt repayment capacity had been affected by an increased debt burden while the sinking fund budget had not taken off the ground as no resources had been set aside as contingent.
EIU argues that Zambia had not put the loan deal with the IMF as a priority.
The London-based think-tank has doubted Zambia’s capacity to repay the US$3 billion in the absence of the IFM’s US$1.3 billion financial bailout…
https://www.lusakatimes.com/2018/11/08/government-has-set-aside-10-million-dollars-in-the-sinking-fund-for-the-eurobond/
The political fight for 2021 is between HH and ECL. ECL is heavily supported by the chinese comrades and hence the can forgive the debt for a while until after the elections. HH is supported by the Western Financiers. They will use this opportunity to squeeze Lungu to collapse the economy so that people will hate Lungu and blame him for everything and see hope in the Western Funded HH.
Need for a competent, focused with capacity to deliver team to be put in place 2021 . At the moment our party the PF Kuwayawaya fye.
Centre for Trade Policy and Development
WHAT ARE THE SOLUTIONS?
YOU SOUND LIKE MOST ARM-CHAIR PUNDITS
LET US GROW THE ECONOMY AND HENCE GDP
THE CURRENT ECONOMIC MODEL OF ZAMBIA WILL LEAD US NOWHERE
EXCEPT TO MORE BORROWING, HIGH UNEMPLOYMENT AND POVERTY LEVELS LEADING TO MORE ……
WAKE UP ZAMBIA
AND HH IS NOT THE SOLUTION AS WE ALL KNOW
Centre for Trade Policy and Development
WHAT ARE THE SOLUTIONS?
YOU SOUND LIKE MOST ARM-CHAIR PUNDITS
LET US GROW THE ECONOMY AND HENCE GDP
THE CURRENT ECONOMIC MODEL OF ZAMBIA WILL LEAD US NOWHERE
EXCEPT TO MORE BORROWING, HIGH UNEMPLOYMENT AND POVERTY LEVELS LEADING TO MORE ……
WAKE UP ZAMBIA
AND HH IS NOT THE SOLUTION AS WE ALL KNOW!!
Nobody can tell us that HH is not the solution. We will make our own dedcion, thanks for the futile effort
Bally will fix it.
Those who have been praying for us to default, how are your prayers to your Saturn hh going? Muzafa nachikonko ba kwindee imwe
Ok now remove these picture and article.
Its annoying.
When Lungu was elected he had nothing. Then we learned he had 2.5 million dollars. At the next election he declared 25 million dollars.
The bond holders need 40 million.
By now he must have much more than that. Let him pay it.