Zambia’s uncontrolled borrowing repels IMF

THE latest Africa Confidential report dated June 1 has revealed that finance minister Margaret Mwanakatwe has failed to yield confidence before the International Monetary Fund (IMF) following Zambia’s continued borrowing for infrastructure projects.

Mwanakatwe has revealed that Zambia’s external debt was $9 billion, although other data shows a figure of between $17 billion and $20 billion.

“Last year, investors still believed there was a chance of IMF finance, though many Zambians realised Lungu would not stop borrowing and so scotch any chance of a programme. Relations between the Ministry of Finance broke down and remain tense. Finance minister Margaret Mwanakatwe appointed in February, has failed to establish a rapport with the Fund, insiders say. Experts say an IMF programme and a loan to support balance of payment are essential. But the IMF wants Zambia to show that it will stop borrowing and get debt on a stable path,” the AC has stated.

This requires tough decisions, it has noted, such as cancellation of major projects and strict fiscal discipline, “which do not appeal to Lungu, especially as his eye is on the 2021 election”.

“Finance ministry insiders say the gap between the IMF’s view and the government’s is too wide for the programme to be possible this year,” the AC has stated. “The Fund’s next mission is not until September, which is far off, given the urgency of the country’s problems. Mwanakatwe is trying to persuade officials to visit in June, the month before the $56 mn tranche of payments on Eurobonds is due. But it is Zambia that has to make the first move, by sending a strong signal to IMF that it will stop borrowing. This will entail unravelling contracted but not yet disbursed loans and is no simple task. Much of the now $9.1 bn. debt stock consists of the Eurobonds, Paris Club obligations and concessional lending from international financial institutions. So far, little of the roughly $8 bn of contracted Chinese project’s finance has been included, yet many large projects are well underway, including almost $800mn worth of airports (and) road projects amounting to further billions of dollars.”

It has further reported that the uncontrolled borrowing by President Edgar Lungu’s government was growing too large to cover up.

It notes that while Zambia’s debt is growing, international reserves keep falling, now standing at $1.8 billion as at February.

Africa Confidential asserts that the Bank of Zambia’s late release of data on foreign reserves is a result of its hesitancy to admit how low they are when it should be restoring confidence in the economy.

“In mid-May the Bank of Zambia updated its data on its foreign exchange reserves, which had dropped to a historic low in January, falling between $2bn. The bank is late with its data, prompting suspicions that it does not want to admit how low they are at a time when it needs to be restoring market confidence. The latest charts not only show that reserves fell to $1.8 bn in February but also revived the January figure to include an additional $10mn in debt service payment for reserves,” the AC stated.

The report has further catalogued some payments made by the government towards Eurobonds.

“The $50 million paid out for ‘other’ government uses in January is likely to represent an instalment of the $380mn. The London High Court ruled was owed to Libya’s Lap Green. Bank of Zambia data does not go beyond February, but AC understands that the government also used a further $43mn from the reserves to pay another tranche of Eurobond interest in April,” stated the AC.
“The next payment of $56mn is due in July. The dwindling reserves still appear to be the only source of funds for this, exacerbating concern among inverters in the Zambia’s Eurobond… In the week beginning 21 May, the kwacha began losing value again and its now at $10.30 to the US dollar. The weaker currency will only make Zambia’s already unsustainable debt service payment more expensive.”

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