OPEN EYES WIDE…if you’re looking to incur further debt, Foote cautions govt

UNITED States Ambassador to Zambia Daniel Foote has advised the Zambian government to open its eyes wide if it is considering incurring further debts for the country.

Zambia’s debt position is currently precarious, with recent reports indicating that the country’s Eurobonds are the world’s worst performing.

The government’s capacity to pay back the fast-increasing external debt (which analysts say is well around $20 billion while the Ministry of Finance’s latest figures place it at $9 billion) has been another major source of worry as borrowing for infrastructure projects continues against advice of the World Bank and the International Monetary Fund.

Economist Professor Oliver Saasa this week cautioned that Zambia’s debt threat was real and its effects on the larger economy should not be underplayed, hence the need to prudentially apply resources in the sector.
“Yields on Zambia’s Eurobonds have risen significantly, which has worsened the pain for holders. With losses of 11 per cent this year (2018), the country’s dollar securities are the worst-performing in the Emerging Markets US$ Sovereign Bond Index that includes more than 70 countries. As prospects for concluding a US$1.3 billion bailout deal with the IMF remain unassured, the on-going questioning of the true size of Zambia’s external debt stock has not helped much in calming the market in spite of assurances from the government regarding the correctness of what it has officially reported, currently at US$8.7 billion,” Prod Saasa stated.
The Africa Confidential last week also reported in its June 1 issue that the uncontrolled borrowing by President Edgar Lungu’s government is growing too large to cover up.
The report stated that while Zambia’s debt was growing, international reserves kept falling, standing at $1.8 billion as at February.

“Obviously when any country takes on a large amount of debt rapidly, it concerns the international community about its ability to service that debt. And I think since I got here in December, I have started to see a real realization on the part of the government that this is an issue now and so we encourage them to (a) figure out and have a good plan and strategy as to how they [are going to] service the existing debt and (b) to go with both eyes wide open if they are looking to incur any further debt,” Ambassador Foote said in an interview following ongoing concerns on Zambia’s rising external debt. “And I see in the papers, each day there is much more discussion about this than there was in December so I think things are turning positively; I think Zambia is gonna have to look at some challenging financial and economic reforms to be able to move forward.”

He emphasised that the government must plan and sustain its debt levels.

“The United States is aligned with the similar opinions and concerns of large multilateral economic institutions like the IMF and the World Bank. And we continue again to urge Zambia to continue to develop its plan to sustain its debt and to carefully consider before they take on any of it,” said Ambassador Foote.

And in a report titled ‘Pro-Growth Road Infrastructure Development in Zambia: Challenges, Opportunities and Policy Options, Prof Saasa called for prudential application of resources in the roads sector. Prof Saasa, who is Premier Consult Limited consultant, stated that relative to regional comparator countries, Zambia was a high-cost country in the area of road construction.
“The high construction costs are caused by, inter alia, the onerous procurement processes and the fact [that] the government has quite often floated bids for road infrastructure projects without prior designs and plans that should provide indicative estimation of cost. An audit of RDA by the Auditor General’s Office revealed serious anomalies, which included RDA inability in some incidences to pay contractors on time; poor or absent engineering designs; single sourcing, which is contrary to Government regulations; over-procurement; and generally poor workmanship,” stated Prof Saasa.

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