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External debt has become unsustainable, admits govt

GOVERNMENT has told creditors that it cannot assure that any of its outlined estimates or targets will be met.

The PF administration disclosed that the direct government external debt stock has increased from US $11.54 billion in December 2019 to $11.97 billion in June 2020… “and has become unsustainable thus requiring a comprehensive debt plan”.

According to a disclaimer in a presentation finance minister Bwalya Ng’andu made to creditors on Tuesday, the government indemnified itself and any of its parties from loss suffered by anyone who relied on the information contained in the document.

The presentation, prepared with the assistance of government’s financial advisors Lazard Frères SAS and Mnguer Advisory SAS and legal advisor White & Case LLP, reveals the country’s debt standing at US $18.5 billion (about K369.7 billion) as at December 2019.

“There can be no assurance that any of the estimates, targets or projections will be met. Accordingly, none of the Zambia Parties shall be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in or omission from this Document and any such liability is expressly disclaimed,” the document stats. “…This Document shall be viewed solely in conjunction with an oral briefing provided by the Advisors. While the Republic has used all reasonable efforts to ensure that the factual information contained herein is correct, accurate and complete in all material respects at the date of publication, neither the Republic, nor any of the Advisors, nor any of their respective related or affiliated bodies, or entities, nor their or their affiliates’ respective stakeholders, directors, partners, officers, employees, advisers or other representatives, if any (together, the “Zambia Parties”), make any warranty or representation, expressed or implied, concerning the relevance, accuracy or completeness of either the information or the analyses of information contained herein or any other written, oral or other information made available to any Recipient in connection therewith including, without limitation, any historical financial information, the estimates and projections, and any other financial information, and nothing contained in this Document is, or may be relied upon as, a promise or representation, whether as to the past or the future.”

Government further warns that the presentation, “does not purport to be all-inclusive or to contain all the information that a Recipient may require in its assessment of the Purpose.”

“Further, this Document has not been prepared with regard to the investment objectives, financial situation and particular needs of the Recipient. No Recipient is thus entitled to rely on this document for any purpose whatsoever and any Recipient should conduct their own independent review and analysis of the information contained in or referred to in this Document and consult their own independent advisers as to legal, tax and accounting issues when assessing the Purpose,” it states further. “The information in this presentation reflects conditions, including economic, monetary and market prevailing as of September 2020, all of which are subject to change. This Document may contain certain forward-looking statements, estimates, targets and projections prepared on the basis of information provided by the Republic. Such statements, estimates and projections involve significant subjective elements of judgment and analysis which may or may not prove to be correct. There may be differences between forecast and actual results because events and circumstances frequently do not occur as forecast and these differences may be material…’’

And Dr Ng’andu lamented that the country’s debt had grown rapidly, thereby impacting negatively on the economy.

The presentation, which is also available on the Ministry of Finance’s website, shows the country’s overall public domestic debt standing at $4.7 billion (K7.7 billion).

Public and publicly guaranteed external debt stands at $13.8 billion (about K275.7 billion), and this includes central government guaranteed and non-guaranteed debt.

And the government’s direct external debt which includes bilateral and the Eurobonds stands at $11.5 billion (about K239.2 billion).

“Zambia’s total public and publicly guaranteed debt reached USD 18.5bn, or approximately 104 per cent of GDP as at end 2019, impacting Zambia’s ability to advance social and economic initiatives, especially in the current COVID-19 environment,’’ Dr Ngándu told creditors on Tuesday.

He further told them that, “The direct government external debt stock has increased from US $11.54 billion in December 2019 to US $11.97 billion in June 2020… and Has Become Unsustainable thus Requiring a Comprehensive Debt Plan”.

Dr Ng’andu’s presentation also showed that public external debt was set to remain above all IMF indicative thresholds for a prolonged period in the absence of a comprehensive debt management strategy.

“A large reduction in the net present value of Zambian public external debt will be required to restore external debt sustainability over the medium term (2023-2024),” he said.

On government’s request to suspend debt repayment, Dr Ng’andu said it aimed at achieving five objectives.

According to him, the first objective is to provide immediate liquidity relief to free fiscal space.

“The debt standstill requested (pursuant to the Consent Solicitation) and the debt service suspension from other public and private creditors will help us address our financing needs arising from the COVID-19 pandemic,” he said.

Dr Ng’andu said the relief would also provide the country the necessary time and leeway to, “1. Finalise the assessment of our public debt situation. 2. Calibrate key parameters of our debt management exercise in coordination with the IMF. 3. Engage a constructive and good faith dialogue with our creditors.”

He also stressed the need to reach agreement in principle with the creditors on debt strategy parameters compatible with Zambia’s public debt sustainability as per IMF definition

“…Formally implement agreements with creditors… Secure external financing in the context of an appropriate IMF engagement,” Dr Ng’andu explained.

He further told creditors that the country had undertaken a strategic prioritisation of projects in order to align available resources to needy areas.

Dr Ng’andu said since the beginning of the coronavirus pandemic, the government had reduced projects’ disbursements.

He however said a few structural and strategic projects would be maintained.

“Rescoping and cancelling projects up to USD 1.3 billion in order to create fiscal space to finance high economic and social value projects with the aim of minimising the impact of COVID-19 and contributing to economic recovery,” he said. “− In particular, disbursements of Chinese loans have drastically fallen. Remaining disbursements relate to multilateral institutions financing of strategic and priority projects. This reflects the government’s strategy to reduce Zambia’s indebtedness in a context of debt distress. Moreover, Zambia is engaging with creditors to agree on deferment terms that will enable continued project implementation of strategic projects.”

And Dr Ng’andu set out principles on which the country would engage with international creditors.

“Transparency, good faith efforts for a collaborative process to restore debt sustainability, fair treatment across creditors consistent with IMF debt sustainability analysis,” stated Dr Ng’andu.

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