Investors are awaiting evidence that Zambia’s efforts to shore up its currency will succeed as the government starts marketing a Eurobond, sub-Saharan Africa’s first sovereign international debt sale this year.
The kwacha, which slid to a record 6.44 per dollar on March 19, has extended its losses by 4.2 percent since Zambian policy makers scrapped laws to ease dollar shortages and took steps to reduce liquidity in the banking system. The kwacha slid 13 percent against the dollar this year, the worst performer of 24 African currencies monitored by Bloomberg.
[pullquote]The kwacha slid 13 percent against the dollar this year, the worst performer of 24 African currencies[/pullquote]
The central bank, led by Governor Michael Gondwe, meets to decide on interest rates today after boosting the benchmark to a record 10.25 percent in February to support the currency and tame inflation, which accelerated for the fifth straight month in March. The nation, which sold Eurobonds in September 2012 with yields reaching 5.16 percent that month, may pay as much as 9 percent to sell debt now amid lower copper prices and a fiscal deficit, said Chris Becker, a market strategist at ETM Analytics.
“They’re going to be trying to market the bonds on the back foot,” he said by phone from Johannesburg yesterday. “It’s a risky one. They’re going to pay up.”
Yields on Zambia’s dollar securities, which rose to a record 8.33 percent on March 20, fell four basis points to 7.84 percent today. The notes lost 3.4 percent in 2014, the continent’s worst-performing dollar debt after Ghana, according to Bank of America Merrill Lynch indexes.
Bond Roadshow
The landlocked nation, which borders eight countries and relies on copper for about 70 percent of its export earnings, said in October it may issue as much as $1 billion of Eurobonds, hiring Deutsche Bank AG and Barclays Plc in January to lead the sale. The issuance will be the first since the U.S. Federal Reserve reduced its bond-purchase program. Ghana, which planned to sell its third Eurobond in April, delayed the program because of rising interest rates.
[pullquote]The Bank of Zambia, to be honest, doesn’t have the money to plug this hole[/pullquote]
Zambia’s planned sale comes after the last two Treasury bill auctions failed, with the central bank raising a combined 186 million kwacha ($31 million) of the 1.2 billion kwacha on offer. It also follows a credit affirmation by Fitch Ratings on March 21, which kept the nation’s debt at B, five levels below investment grade, after cutting it one level last year.
Officials started in Los Angeles yesterday before ending their roadshow in London on April 3 and 4, according to a person with knowledge of the offering who asked not to be identified because they were not authorized to speak publicly.
Second Sale
Central bank spokesman Kanguya Mayondi referred questions to Finance Ministry spokesman Chileshe Kandeta, who didn’t immediately reply to an e-mail. Permanent Secretary Felix Nkulukusa also didn’t immediately return e-mailed requests for comment.
Zambia’s second dollar-debt sale probably won’t be as successful as its first, which attracted bids of about $12 billion for the $500 million it initially offered, according to Sashi Kumi, a credit and fixed-income trader with Nedbank Capital in London. The country raised $750 million amid the strong demand.
“I don’t envision investor appetite will be as strong as last time round,” Kumi said in reply to e-mailed questions yesterday. “I think that they would have to bring this issue at around the 8.5 percent level to attract investor interest.”
On Hold
The central bank will keep rates on hold during the first half of this year after February’s 50 basis-point increase, which was an “aggressive move,” Celeste Fauconnier, an Africa analyst at Johannesburg-based Rand Merchant Bank, said by phone yesterday. Zambia may have to offer a yield of as much as 9 percent for the bond, Fauconnier and colleague Nema Ramkhelawan-Bhana said.
The kwacha slid 2.6 percent to 6.3950 per dollar at 1:44 p.m. in Lusaka, after dropping the same amount yesterday. The currency lost 0.7 percent this year through March 26, after adjusting for volatility, the most among African currencies, according to BLOOMBERG RISKLESS RETURN RANKING.
The kwacha may eventually strengthen back to 6 per dollar, supported by inflows, particularly into the nation’s copper industry, Ramkhelawan-Bhana said.
The central bank cannot afford to use dwindling foreign-currency reserves to defend the kwacha, Trevor Simumba, managing director at Sub-Saharan Consulting Group Zambia, said by phone March 19.
Leaking Roof
“It’s like fixing a leaking roof with a small cup,” he said. “The Bank of Zambia, to be honest, doesn’t have the money to plug this hole.”
President Michael Sata, 76, has focused on developing roads and railways in the $21 billion economy, which combined with pay increases for civil servants and fuel and corn subsidies swelled the budget deficit to a forecast 8.5 percent of gross domestic product last year. While Sata implemented a two-year wage freeze for state employees in October and has removed corn aid, finances are still under pressure from an 11 percent drop in copper this year, with prices reaching a four-year low on March 13.
“We are circumspect of the central bank’s ability to achieve exchange rate and price stability while fiscal policy is decidedly expansionary,” Irmgard Erasmus, a fixed-income analyst at Paarl, South Africa-based NKC Independent Economists, said in an e-mailed reply to questions yesterday. Short-term measures will have a limited effect and the “government needs to address the large recurrent expenditures” in its budget, she said.
Source:Bloomberg News
I don’t think anyone in PF understand this….
This must sound like Greek to Ukwa
Anyone who thinks he can run a country via a facebook page clearly wouldn’t understand this.
@ Australian
Dont find relief and comfort blaming others for your lack of understanding of economic rudiments
Myself and my fiance are just finalising buying a plot in New Kasama.
All in the name of the sliding Kwacha, you can see why I am desperate for it to fall down, Ideally when and If i transfer if it can tumble to £1 to £12 or plus , would be a
bonus
Not being heartless, just reminding you that there are some of us that are smiling inside.
Thanks
Also I am being told by the person selling us the plot that the title deeds will take between 12 months to 18 months if we are lucky.
WHy does potentially the title deeds take so long, he has told us perhaps 2 years???? I hope we are not being conned as we have sent 40% upfront
Corruption in zambia is rife I see.
Thanks
Mushota, you are selfish..
@Mushota, sweetheart! you never seem to stop amazing me. What are your several degrees, PhDs, bachelors, masters all about? You truly should be honoured by LT as the comic of the year.in its simplest form inflation means, a pound £ today is not a pound tomorrow. I would really want to know which year you were born as you lack certain nuances for someone purporting to be highly educated. Do you remember when Germany had suffered the worst inflation during and after many years of the first and second world wars? The Germans literary needed a wheelbarrow load of notes to buy a loaf of bread. No matter how much your Scottish pound which will soon be as valueless as the kwacha once you breakaway from the UK will fetch against the kwacha, it would still not be able to buy anything in Zed.
@mushota, on the other hand, you are welcome to buy my plot in New Kasama as my investment portfolio has been weakened by the ever falling kwacha. I am in negative equity at the moment. You can have my 5 acre plot for $100,000.00. I have already sunk a borehole and there are three finished housing units for the workers, All you need to do is start building your dream home with Nick dear. If you are serious then we’ll take this outside this forum.
Such write up and analysis is greek to most PF supporters. Yet the truth is all over the walls, PF is a Project failed.
Zambia’s planned sale comes after the last two Treasury bill auctions failed, ……… this extract further demonstrates the failure by Sata and his team to inspire confidence in the economy. Trouble is yet to come, once the level of poor harvest is driven home at the end of Maize marketing season.
Good education is what is needed to run this beautiful country. Unfortunately luck is not on our side at the moment. Our president does not understand anything about leadership only see tribe to be important.
Fiscal displine is very cardinal.
Chimbwi Mushololwa!
Come on you government officials! You do not hide from responding to questions. The market and investors need answers and assurances. Your hide and seek will just make things worse. You should be out and about telling the world your good story. Hiding like your Boss Sata won’t help anyone. I can foresee more bruises coming. The immediate past economic managers like Fundanga and Musokotwane always had frequent media briefings even on international media channels. Or is it that you are clueless and you’re scared that U will be found out?
DONCHI KUBEBA FEVER HAS INVADED THE INTERNATIONAL BOND MARKETS
Ah! so there are already people out there on a mission to burden us with another $1bn debt…seriously we need to know what’s going on. We have not even properly utilised the previous bond, not yet seen tangible results here we are on world tour getting more debt. At this rate we will surpass the Kaunda debt burden of $7.2bn by 2016.
Exactly my concerned. The local media is blank on this one.
Lack of quality local investigative journalism is really depriving us of info.
kekekeke..yakosa..
some people just need to be deleted. especially that face book clown whose only expert job is to sweep at railway station
This is rocket science to the empty tins in govt the better off reading Post editorials written by a wannabe journalist.
When you were voting for them, you knew you were voting for illiterates. Now you are the ones crying foul the loudest! Shame on you. PF did not jump onto the driver’s seat by themselves. You entrusted them the responsibility while knowing fully well that, the majority of them were night school graduates.
This is a national scandal. We all must have seen it coming. Now, 50 years after Zambia’s independence, this is not what we should be seeing happening to the country’s economy and its currency.
The problem as I see it, stems from our political orientation. Zambians are yet to acquire a political mindset independent of tribal systems. On this regard, we are still toddlers at 50 and already beginning to grow grey hair. Otherwise, Zambia could be shinning.
So Kanguya Mayondi,Chileshe Kandeta and PS Nkulukusa are all in hiding failing to reply to mails.What a shame,what a leadership.Even the pipo who are supposed to clean up after the leaders are all in hiding.
The picture says it all!
The President gladly keeps his entire Cabinet (i.e. the entire Government of the Republic Zambia and every taxpayer in the nation!) waiting while he plays “big man” and enjoys his sweet time reading the newspaper in front of everyone else. Ki-ki-ki, these people will wait for me – that’s power! Right, Sir?
Picture says a thousand words, more than what you have ably deduced
PF Govn’t that’s Moral hazard .
The PF cadres are not able to read and understand the article. They will actually accuse the writer of being bitter.
PF Government needs to understand that when you educate yourselves, you learn new things that you were previously unaware of. This gives you the ability to make better decisions, come up with more evolved and intelligent thoughts, improve the lives of yourselves and those around you, and thus makes you more valuable to the whole nation.
The solution will be to tighten fiscal policy; that is cut recurrent expenditure and/or even some capital expenditure to help reduce fiscal deficit. As it is GRZ is living beyond its means; spending more than it’s earning [tax] and therefore accruing debts both internal and external [bonds]. Borrowing from banks is crowding out the private sector and contributing to rising interest rates and depreciation of the kwacha. It’s unlikely that PF will follow a contractionary fiscal policy given the ambitious infrastructure projects and lack of fiscal discipline.
I agree with you. But these changes can only come into effect after a change of government. The current crop believe in expansionary fiscal policy to the death. They are socialists. Come 2016 people should think very hard what sought of an economy they want for themselves and who is able to deliver that which the country needs
Your analysis Alfred is constructive: we need people like you in this lovely country.
We are a peculiar nation(Zambia), we always think that the person who talks the most has the guts to do the job or rather knows what to do. Ukwa will blame everyone else except himself for the rapid deteriorating economic conditions of our country. ruling a nation is very different from convincing 14 or 20 women to be your concubines. This is a very good reason why a 50+1 close in our constitution is very very crucial. You do not want a few illiterate and rude chaps to ruin our country.
Well they dont have much ammunition left do they? They could raise interest rates once more but this would be very damaging to the economy both in the short and long run. And it also seems they cant use the reserves to defend the currency as Turkey was doing recently with its currency. They cant even raise the correct amount of treasury bills in the market. And that really sums up were we are as a country. The economy is basically in the toilet. All those years of working hard by past administrations now gone. We have some one who is not trained in Economics running BOZ, a creature from the past as FM. Time to retire these useless creatures with their socialist UNIP policies.
Well said Lusakaboy.
“…The nation, which sold Eurobonds in September 2012 with yields reaching 5.16 percent that month, may pay as much as 9 percent to sell debt now amid lower copper prices and a fiscal deficit…”
This is the most important sentence in this article; in a nutshell, don’t expect the Kwacha to improve until copper prices improve and the government cuts spending (especially on bloated pensions and civil service salaries). The biggest problem with these bond offerings are that they are denominated in foreign currency, which means your interest & principle payments will be denominated in foreign currency. This will put additonal pressure on the Kwacha. The government needs to find a way to work with the private sector to develop the country, which in turn will expand the tax base.
Off topic; Zambia has clinched a friendly with Japan to be played in Florida in June. Thank you Renard and Kalusha for winning AFCON 2012 and giving the team exposure.
When you have an operational job that pays handsomely. There usually isn’t much time for leisure. However observations from my terrace shows that the Zambian scene is different. The operational officers (fixers- veep, d/ministers, PSs, etc) and their superiors tend to have leisure time together, leaving a vacuum for fixing mishaps in the everyday running of the state.
Our country needs economic transformation from an import-oriented economy to an export-oriented one, simply we to need diversify the economy, prop up broad-based production and exports. This high demand for forex is to a large degree to import goods which we can surely produce at home and export to increase forex earnings and insulate our currency from instability caused by a narrow export base, i.e, copper. A broad-based economy graduating from raw material exports to manufacturing value-added exports. With our comparative advantage in natural resource endowerments, this is achievable if our politics gravitate towards an economic discourse, hence nurturing the appropriate and sustainable political will for correct economic transformation backed and evaluated with unfolding evidence.
Excellent observation Hon!
What did you jus say? Please loosen up the verbiage so that the less economically inclined can decipher that.
I’m convinced that the principle issue we’re currently facing is the drop in copper prices. Though experts in economics suggested the suspension of SIs 33 and 55 as a quick fix to our economic glitch, it yielded no fruits, except for a false hope that lasted only a few hours.
“…finances are still under pressure from an 11 percent drop in copper this year, with prices reaching a four-year low on March 13.” It can’t be more vivid than this.
The long term solution is to be able to produce and sell finished products other than always importing (even toilet paper). Raw materials are in abundance in this country—natural and human resources. The blame game won’t help. The best we can do presently is find ways of marketing copper and our country Zambia (investor confidnce). God bless you…
Thank you, Aibmaz. Your submission is spot on, too. How i wish we can all engage in productive and progressive debates on such online facilities, so that we can collectively contribute ideas that enhance the common good of all our fellow citizens.
my poor country needs to focus on is education.
Like Nelson Mandela puts it “Education is the most powerful weapon which you can use to change the world.”
if we voted for educated leaders we would not be having this problems.