AFRICA Confidential foresees that national politics and geo-politics will ruin Zambia’s attempts to resolve the crisis of her more than US $12 billion foreign debt.
The publication quotes insiders who say President Edgar Lungu and the PF are steeped into securing re-election next August, as opposed to addressing the country’s ballooning debt arrears and repayment stand-off with foreign creditors.
Africa Confidential (AC) has been reporting on Africa since 1960.
Its latest publication, dated November 21, 2020 is titled: ‘creditors fume as the beat goes on.’
The AC sees little sign that President Lungu’s government would produce a credible debt restructuring plan acceptable to both Western and Chinese lenders.
On November 13 this year, creditors refused to accept the Zambian government’s proposal for a possible six-month suspension of interest payments on debts.
Finance minister Bwalya Ng’andu, on a Sunday Interview programme on ZNBC TV, evasively confirmed that Zambia has defaulted on its Eurobond interest payment of $42.5 million.
“National politics and geo-politics are set to scupper any attempts to resolve the crisis over Zambia’s more than US $12 billion foreign debt,” AC states. “Following the country’s historic sovereign default – its failure on 13 November to meet a $42.5 million coupon payment on its $3 billion of Eurobonds – there is a strong prospect of a continuing build-up of arrears until after the next elections, due in August 2021.”
It picks on the government’s Farmer Input Support Programme (FISP) – “which cost an unprecedented $500 million over the past year” – and brands it as a key source of patronage for the PF.
AC adds that the FISP, according to what it calls “opposition campaigners,” is the serial economic mismanagement and misuse of State funds by President Lungu’s government unlike the public health emergency of the COVID-19 pandemic.
“Insiders say that President Lungu and the ruling Patriotic Front are much more focused on winning re-election next year, boosting votes by spending on public projects such as cheap fertiliser for farmers, than on addressing the ballooning debt arrears and repayment impasse with foreign creditors,” AC writes. “That is the core reason for the debt implosion.”
AC further states that the geo-politics around Zambia’s debt are almost as tortuous, “pitting the mainly Western holders of the $3 billion in Eurobonds against Chinese banks in the struggle to get paid.”
It states that in the fog of the debt wars, there is minimal transparency of loan terms on the Chinese side, which bondholders feel disadvantages them in negotiations with Zambia.
AC understands that loans from Chinese banks and companies make up over $3 billion of Zambia’s outstanding debt, and that there could be as much as $2 billion of undisbursed credits from China still in the pipeline.
“Some experts say that China’s State entities have been re-categorising liabilities, turning the China Development Bank, for example, from a State-backed policy bank to a ‘commercial lender’,” AC states. “This could affect international negotiations over the disclosure of loan terms. There is one set of standards for bilateral creditors and another for commercial lenders.”
It further notes that it was China’s appetite for copper and cobalt over the past decade that fuelled Zambia’s mini-boom but that the misuse of her credits worsened the economic downturn.
AC states that the International Monetary Fund (IMF) reckons Zambia’s gross domestic product could shrink by five per cent this year, as the kwacha continues its fall against the US dollar.
“Some forecasts put current GDP at just $17 billion – a drop of $10 billion since 2018,” AC says. “As Lusaka’s revenues and forex reserves fall, levels of distrust between the competing sets of creditors and the government are mounting. Western creditors don’t want Zambia to cut a secret side-deal with China’s creditors.”
AC adds: “in turn, China’s banks say they are not prepared to offer debt relief if it is to be used to pay-off hedge funds in the West.”
“The best way to resolve this would be full disclosure on all sides but that looks unlikely. An IMF team is due in Lusaka next month (December) but few bankers expect any progress until after next year’s elections,” AC states, adding that the biggest problem remains Zambia’s failure to produce a credible financial recovery plan.
AC states that Zambia has been borrowing on an epic scale since 2017, “little of it under the control of the finance ministry.”
“That meant no IMF programme has been possible. The Fund classed Lusaka’s management as so bad that it refused loans under its almost conditionality – free Rapid Credit Facility, designed to mitigate the effects of the COVID-19 pandemic,” states AC.