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Zambia at high risk of debt distress, warns IMF

THE IMF board will not lend Zambia a US $1.3 billion interest-free loan to help the country’s economy recover fully over concerns about new loans the government is contracting.

In a statement, the International Monetary Fund said rapid accumulation of new loans had put the country at a high risk of debt distress.

Finance minister Felix Mutati is this week expected to meet top officials of the IMF in an attempt to make last minute attempts to clinch a US $1.3 billion loan from the Bretton Wood institution, and also agree to an economic recovery programme to support the local initiative – the economic stabilization and growth programme as well as the Seventh National Development Plan.

But sources close to the deal say Zambia’s continued appetite for non-concessional loans, especially on infrastructure spending, had made it difficult for the IMF to agree to a new programme with the country.
One of the conditions for an IMF supported programme was that the country must honestly state its debt position – both local and foreign, and also offer a credible roadmap on how to dismantle those obligations.

As part of the conditions, IMF also demands that the country should clearly state a debt-management strategy to guide the contraction of new debts and how to repay them.

But the sources say the IMF was particularly concerned that both Treasury and Parliament lacked control and oversight on the contraction of new debts and procurement of key infrastructure projects.
The sources said most of the new debts and new projects in Zambia were contracted directly by State House while Ministry of Finance was merely directed to ‘formalise’ the deals.

The sources said the IMF feared to go into an economic recovery programme with Zambia as the country’s debt position was not clear while sources of new debts also remained unclear.

“[IMF] directors expressed concern at the pace at which public debt, especially external debt, has increased and now put Zambia at high risk of debt distress,” according to the statement released today.
They commended the progress made in developing a medium-term debt strategy. While recognizing the need to address infrastructure gaps, they emphasized that to maintain debt sustainability, it is critical to slow down on the contraction of new debt, especially non-concessional loans, strengthen debt management capacity, and improve project appraisal and selection processes” Zambia fears in the absence of a credible economic recovery programme with the IMF, it would be difficult to refinance the Eurobonds whose redemption is due in five years’ time for the US $750 million contracted in 2021.

The Ministry of Finance has indicated that Zambia would not be able to repay the Eurobonds when maturity period comes and that was why it wanted to start talking to coupon holders (lenders) to refinance the three Eurobonds.

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