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Consequences of COVID-19 bond

Edgar Lungu has decided to borrow money to pay local debts.

“My government has decided to issue the COVID-19 bond amounting to K8 billion as a stimulus package to enhance economic activity. Part of the money raised from this bond will be used to pay off the retirees and those on the separatees pay roll who have been waiting for their retirement benefits for a long time. In addition, government is also concerned about domestic debt owed to suppliers of goods and services. That is why part of the money from this bond will be used to pay off suppliers of goods and services, including the local contractors,” says Edgar.

But what is this COVID-19 bond?

This COVID-19 bond is a debt instrument issued by the Government of the Republic of Zambia through Bank of Zambia. By issuing this instrument, the government is borrowing money from the purchasers of this instrument, generally with a promise to pay periodic interest payments and to repay a face value on maturity date. Government bonds are relatively longer-term instruments with a minimum period of two years.

This is really a case of borrowing to repay a debt and remain with some change to use on other things. The net effect of the COVID-19 bond is to increase government debt.

It has been put in some confusing and sweet language but it is a debt the government is contracting.

There’s serious political pressure to pay retirees and local suppliers as 2021 elections draw nearer. And this is something that opposition leaders like Dr Fred M’membe has effectively been hammering on.

But what are the consequences of this COVID-19 bond on the Zambian economy? Any local borrowing by the government reduces the amount of money available for the private sector to borrow and expand their business operations.

Is this good for the economy?

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