FORMER finance minister Situmbeko Musokotwane has warned of imminent legal suits against the country over debt default.
Dr Musokotwane, who is Liuwa UPND member of parliament, also says there will be more economic pain on citizens resulting from this failure.
Last Friday, creditors refused to accept government’s proposal for a possible six-month suspension of interest payments on all debt.
Recently, finance minister Bwalya Ng’andu told creditors at a meeting that the country owed about US $18.5 billion in debt, including Eurobonds.
But other sources, including the World Bank, say the country’s actual debt figure is going towards $37 billion.
Before Parliament on Friday Vice-President Inonge Wina said Zambia was not ready to default.
“We were informed in the House that the Minister of Finance [Bwalya Ng’andu] was in negotiations with the bondholders. Whatever result comes out of that discussion or the negotiations, the country will be informed. And a way forward will be found in meeting Zambia’s obligations to the bondholders and other lenders that supported Zambia in her hour of need. So, Mr Speaker, the country is not defaulting,” said Vice-President Wina. “We are all concerned about the economy of the country, but the Minister of Finance will give a statement to this effect. I can also assure the honourable member that this country is not defaulting.”
Later in the day, Dr Ng’andu informed the nation that holders of Zambia’s $3 billion in Eurobonds have rejected the government’s request for a payment holiday after the government last month missed an interest payment on $1 billion of bonds due 2024.
“The Government of the Republic of Zambia wishes to announce that the Extraordinary Resolutions set out in the notices of the adjourned meeting of Zambia’s Eurobond holders dated 20th October 2020, which was subsequently held today, 13th November 2020, were not passed. Accordingly, the modifications and waivers, including the deferral of interest payments due on each of the bonds during the period from 14th October 2020 until 14th April 2021, requested by Zambia will not be implemented,” said Dr Ng’andu. “While government regrets that the bondholders did not approve the requests made by Zambia in good faith, we remain committed to finding a consensual and collaborative resolution to debt sustainability issues. In light of the fiscal and economic challenges the country faces, Zambia will continue to engage in constructive dialogue and share information with the ad hoc committee of bondholders and all other creditors in order to agree a resolution that would gather support from all its creditors.”
In an interview, Dr Musokotwane, an economist, feared that some creditors would go for the country’s assets.
“I’ve gone through that process in the 1990s when I was deputy governor at the Bank of Zambia, and later on when I was secretary to the treasury. It’s not a nice experience that every other moment people are knocking on your door: pay, pay, pay! You don’t even have the time to sit down and think properly because you are being disturbed,” he said. “But on top of that, some of the creditors are likely to take the Zambian government to court. Not courts in Zambia, many of those agreements they agreed the areas of taking each other to court. It’s not Lusaka but, may be Johannesburg, London, New York, yeah. So, we can expect that many of these creditors will be keeping our Attorney General and the lawyers very busy; being taken to court.”
Dr Musokotwane wondered how the country would defend itself from such legal suits.
“And obviously it is difficult to imagine that there’s going to be any defence which we can offer. So, we can expect judgments against us. Again, I’m talking about this from experience in the 1990s and 2000s. So, we can expect judgments against us to be entered,” Dr Musokotwane said. “And when that is done, a number of them will try and enforce those judgments, which means that they’ll now be looking very carefully at the Zambian assets, especially those which are outside the country and assess which one they can grab as a way of enforcing that judgment. So, you can expect that to happen; seizure of government assets.”
He said it was clear that the country had defaulted, a situation that everybody feared.
“I think, first of all, what I can say is that there is a default. In other words, government will not pay because there’s a statement made by the Minister of Finance… And then that statement, my understanding of it, in simple man’s language, was saying since the bondholders have not agreed to a postponement, then unfortunately we’re going to accumulate arears,” Dr Musokotwane said. “Accumulating arrears means we are not paying, so whatever we are not paying becomes arears. So, I think we can take it; it’s given, but we’ve defaulted. Firstly, is that we can expect a lot of trouble from these creditors, not just the bondholders but others as well. Because in the loan agreements it’s stated: ‘if you default on any one loan, then we reserve the right to come to you on a separate loan which you took from us and say pay us because you’ve defaulted with somebody else’. So, there’s a possibility, a strong possibility that other lenders will come and say, ‘you’ve defaulted, now pay us’.”
He anticipated more chaos for the country from creditors.
“Now, the effect of that is to cause a lot of chaos. You can imagine if even those whose debts were not due in full now come and say ‘pay us in full since you’ve defaulted’,” Dr Musokotwane said. “You can imagine the amount of chaos this will bring. The sheer volume of all these creditors coming, each one of them knocking on the door, each one of them sending lawyers.”
And Dr Musokotwane wondered why the government could not listen to advise earlier on.
He said people had now been put into more problems because recklessness from those in power.
“It is very unfortunate because, indeed, they used to pour scorn on us, that we were jealousy, we were against development, when we were saying look, governments of the past; they were fully aware that there are roads that need to be tarred, all sorts of infrastructure that needs to be done,” Dr Musokotwane explained. “But they were also realistic to say I can only do these things to a point where I can manage; I can afford… And they were laughing at us, calling us all sorts of names. But now look at the hardships that they’ve put on the Zambian people.”
He blamed the situation on government’s reckless borrowing.
Dr Musokotwane said the kwacha has also depreciated because of poor economic management.
“And all these are directly related to the excessive debt payments that we’re making. So, they’ve put the citizens under very painful lives. And this was totally unnecessary,” he said. “And, unfortunately, this may not even… I don’t think we’ve seen the end of the pain yet. We have not yet seen the maximum of the pain; the pain is still going to increase. Unfortunately, this is man-made, self-made crisis that was avoidable.”
Dr Musokotwane advised the government to sit down again with creditors and propose a more serious recovery programme to them.
He also proposed a concentration on growing the economy to help get out of the current debt crisis.
“With an expanded economy that earns more money, that generates more tax revenues, that generates more foreign exchange, then we can be able to pay off debts over time. So, this is a very important element of growing the economy,” said Dr Musokotwane. “Now, when your country is known all over the world to be a country that has become bankrupt, that vital process of attracting investors becomes harder to achieve, which means economic recovery can be harder to achieve; longer to achieve. This is why, heavily indebted as we are, ideally it could have been better if we had come to terms with the creditors because then we would have agreed on how to spread the debt over a longer period of time – something that is acceptable to the creditors, something that is good for Zambia. Then there would be no noise out there to say this country has defaulted.”