High Borrowing May Prevent IMF Coronavirus Support

According to reports by Bloomberg, Zambia’s request for emergency funding to support it as it fights the pandemic may be unsuccessful as a result of high levels of debt.

External debt stock continues to rise and now stands at US$11.2 billion. In 2011 it stood at just US$1.9 billion. As a result of the high levels of debt, Zambia is paying millions in servicing payments alone. With estimated revenue for 2020 predicted to fall by at least 20%, or K14.8 billion, as a result of COVID-19, there is growing concern as to how Government will meet payments on debts such as the Eurobonds which are expected to mature shortly.

Commenting on the problem the IMF, which is making $100 billion available to member countries during the crisis, is quoted as stating, “In cases where the debt is unsustainable, the member must take steps to restore debt sustainability in order to access fund financing.” 

“This could require the government to strike a balance of fiscal adjustment that protects critical social spending and debt relief,” the Fund stated. 

Bloomberg notes that foreign-exchange reserves were already at record lows in January and below the levels required to cover external debt servicing 2020, with Government debt expected to reach 110% of GDP this year. 

The IMF recently forecast a contraction of the economy by 3.5%, citing power shortages as a significant problem in addition to the current coronavirus pandemic.

Relations with the IMF have proved trouble under President Lungu’s government. A bailout had been under discussion, on and off, for more than five years, with the Government rejecting an initial proposal in 2015, before returning to the negotiating table. The President then challenged the IMF to leave the country if they felt he had gone beyond the norms of good governance and democracy following the declaration of a state of emergency in 2017. The fund subsequently withdrew its representative to Zambia in August 2018. The major stumbling block to a deal appears to be concerns regarding Zambia’s debt sustainability.