Government Defaults On US $107 Million Loan

The Government has once again defaulted on the loan of US $107 million, secured from Italian bank Intesa San Paolo in order to purchase a pair of military transport planes.

Earlier this year Government defaulted on the first payment due, which has since been made. However, a second instalment due in October is yet to be paid, according to Africa Confidential. Additional charges will be incurred as a result of the late payment.

The default raises concerns that Zambia will default on its Eurobonds next year, with the International Monetary Fund (IMF) warning that high debt levels and shrinking foreign exchange reserves have left the economy vulnerable.

For some time now the PF has been talking about restricting its borrowing. However, little appears to have been done on this score. In 2018 alone external debt rose from $8.74 billion to $10.05 billion, while in 2019 $2.6 billion in additional external loans were contracted.

Also of concern is proposed legislation in the form of the Constitution Amendment Bill No. 10 that may pave the way for the President to contract additional debt without consulting Parliament.

News of the latest default follows headlines last weekend that the Kwacha has fallen by 21% against the dollar this year and is the third-worst performing currency globally in 2019.

Finance Minister Bwalya Ng’andu has previously defended Government’s commitment to meet debt repayments telling media, “Servicing of debt is always priority number one. If anything will suffer it is not debt servicing which will suffer, but something else. We will avoid debt default.” 

The question is what will be the ‘something else’ that will suffer. Will it be education, healthcare, infrastructure or, given how much Zambia now owes, all three? And why does the PF insist on spending so much on aircraft? Recent purchases include a Gulfstream G650 business jet used by President Lungu and a now defunct order for five Sukhoi airliners.