This is just the beginning of more and more loan defaults

The Zambian government says the default in servicing the loan from African Development Bank is due to the sudden depreciation of the kwacha.

According to a statement from the Ministry of Finance public relations unit, the government said the information circulating on social media to the effect that the AfDB has put Zambia under sanctions for failing to repay loans, should not cause panic.

“Government acknowledges that the African Development Bank Group did write to the Ministry of Finance yesterday 23rd December, 2019, to inform the ministry that, as of yesterday 23rd December, 2019, the Bank had not received full payment in respect of Bank Group Bills. The Bank Group added that, in accordance with the Bank Group Policy on Loan Arrears Recovery, it wished to inform the government that sanctions had been imposed on 15th December 2019. It was further stated that the Bank Group counted on government’s prompt action for the timely settlement of the amounts due to enable the lifting of sanctions. The position of government on this matter is that payment of the outstanding amount of US$1.4 million is being processed and will be finalised as soon as possible. The delay in the settlement of the bill was due to the sudden depreciation of the kwacha, which increased the volume of the kwacha needed to settle the amount. This is normal and may occur from time to time. The government wishes to assure the nation and all other stakeholders that the situation is under control and is not as portrayed on social media,” stated the Ministry of Finance.

Hehehe, hehehe, hehehe! Since when did it become “normal” to default on loan repayments?
Probably it’s becoming normal for the Zambian government to default on its loan obligations. This is not the only loan the Zambian government is having problems serving.

Edgar Lungu’s government has been defaulting on its US$107 million loan for the purchase of two C27J twin-engine Spartan military transport planes procured from Italy’s Leonardo.

Zambia defaulted on its first payment on the loan due in May this year, eventually paying on 3 June.
A further €6.2m was due on 30 October. The Italian bank has issued five requests for payment. And these defaults attract penalties of €23,000 in interest running at two per cent a week.

Finance minister Bwalya Ng’andu recently wrote to several lenders to stop them disbursing funds, part of an effort to get debts under control but lenders objected and the disbursements had to go ahead.

Without a significant windfall, it is likely Zambia will default on its Eurobonds next year. And Zambia is now considering restructuring the bonds.

And this government has been having serious problems meeting its wage bill. Salary delays have become “normal” for government workers and for those institutions receiving grants from government.

So this is not a small issue caused by the sudden depreciation of the kwacha. And, moreover, when is the kwacha going to start appreciating?

This is just the beginning of defaults. We should brace ourselves for more defaults.

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