Govt Accumulates More Debt
In an update provided by the Minister of Finance, Dr Bwalya Ng’andu has revealed that Zambia has raised more than 6.8 billion kwacha out of a targeted 8 billion for its Covid-19 bond.
The Minister also confirmed that the money is already being distributed. According to government it is earmarked for payment of arrears owed to suppliers of goods and services and outstanding payments to pensioners and retirees.
Last month Cabinet approved plans to issue the bond to the value of K8 billion as a means of financing economic stimulus.
Zambia’s estimated revenue for 2020 is predicted to fall by at least 20%, or K14.8 billion, as a result of Covid-19, Finance Minister Bwalya Ngandu has previously stated.
Before the pandemic Dr Ngandu had confirmed that external debt stock stood at US$11.2 billion, up from just US$1.9 billion in 2011.
UPND leader Hakainde Hichilema has maintained his critical stance of the Government’s continued borrowing efforts.
“Our friends in PF used the borrowed money to build cheap roads at an exorbitant cost. Surprisingly the roads are already undergoing repairs in less than three years. Also, there is anecdotal evidence of the borrowed money ending in the politicians’ pocket—corruption at its worst. Houses now even grow like mushrooms—boom 48 house with no owners,” Hichilema this week stated.
“Clearly PF have learnt nothing about the dangers of reckless borrowing. Every week they are on the market borrowing through treasury bills and the recently issued COVID 19 bond. That K8 billion Covid 19 bond should have been money available to entrepreneurs and citizens to borrow for help grow our economy — private investment supplements government efforts. Those who try to compete with the government in borrowing in our financial market end up paying high-interest rates,” he continued.
Zambia has been listed among countries eligible for debt relief under the Debt Service Suspension Initiative, which aims to help nations respond to the health challenges and economic shocks of the Covid-19 pandemic.
However, lenders have been reluctant to extend further credit to Zambia during the crisis, with the IMF citing existing high debts as a principal reason for not extending its Covid-19 relief funding to Zambia.
Last week international ratings agency Moody’s released its latest annual report on Zambia to the market. Top of the update was reference to “unsustainable debt dynamics”. The agency noted that Zambia’s “credit fundamentals will likely remain very weak for the foreseeable future.”
Moody’s said that Zambia’s weak credit profile means that debt restructuring is likely to address debt sustainability challenges. It also wrote that debt affordability is deteriorating, and refinancing risks are rising amid weakening financing conditions.
“The slippage and accumulation of arrears underscore Zambia's weak government effectiveness, which has prevented quick and decisive policy action to confront the challenges stemming from rapidly increasing debt. Moody's expects the persistently large budget deficit and exchange rate depreciation to push the debt burden above 110% of GDP this year,” a release on the report stated.
In June Government confirmed the appointment of French firm Lazard Freres for advisory services relating to liability management of its debt portfolio.
Among the debts scheduled to mature in the coming months and years are the Eurobonds, which will see around US$750 million debt mature in 2022, followed by US$1 billion in 2024 and US$1.25 billion between 2025 and 2027.