Eurobond repayments may overburden economy, warns EAZ

The Economics Association of Zambia has warned that government’s failure to adequately prepare for repayment of the three Eurobonds will have devastating consequences for the country’s economy when they mature.

And EAZ president Dr Chrispin Mphuka has called for enhanced transparency on the country’s official debt position.

Zambia’s two Eurobonds issued in 2012 and 2014, worth US $750 million and US $1 billion, mature in 2022 and 2024 respectively.

The Zambian government is expected to make two bullet payments of the US $750 million in one single day in 2022, while also needing to repay the entire US $1 billion in another single day in 2024.

The third Eurobond issued in 2015 worth US $1.25 billion has a different structure and amortises in three equal instalments in 2025-2027.

Commenting on the development, Dr Mphuka warned that government’s failure to adequately prepare for repayment of the three Eurobonds when they mature will have devastating consequences for the country’s economy, particularly the exchange rate.

He said there was need for government to sensitize all stakeholders on progress made on how much had been saved in the country’s “Sinking Fund” that was established to build-up savings.

“It is difficult to say we are confident as an association because we have been advocating for that Sinking Fund. We have been asking ‘how much has been saved so far to prepare for that time?’ And nothing seems to be given in concrete terms,” Dr Mphuka told News Diggers! in an interview, Thursday.

“I don’t know how much is in that Sinking Fund. Probably, that’s what we should ask for from government to give us details of how much they have saved so far towards that because, clearly, paying such type of money in one year and in one day, it will be unbearable for the economy; the exchange rate may just become something else.”

And reflecting on Zambia’s official debt position, Dr Mphuka advised government to be more transparent to quell speculation arising from the uncertainty on the country’s debt.

Last week, Finance Minister, Margaret Mwanakatwe, issued a statement reiterating the government’s position on the external debt as being US $8.7 billion as at the end of 2017, while domestic debt was pegged at K48.4 billion and domestic arrears currently standing at K12.7 billion.

This followed her maiden press briefing on the state of the Zambian economy for the first quarter of 2018 on April 6 where she outlined that the larger part of the increase was due to the reclassification of the US $500 million fuel debt that was reconsolidated in the external debt.

On the other hand, domestic debt has ballooned to K50.9 billion as at March 31, 2018, compared to K38.6 billion in May last year, according to Ministry of Finance data.

Dr Mphuka, however, said that the authenticity of the external debt figure was difficult to ascertain.

“It is difficult to say whether it’s accurate or not because we have heard so many figures from other quarters. So, we don’t know, really, what is the true picture. And, hopefully, maybe government can do a much thorough consolidation of their figures so that we come to a conclusion. At least the revised figure looks to be higher than what was being indicated in the external debt,” Dr Mphuka added.

“I think there is need, really, for government to be more transparent on these debt figures because it seems no one knows what the true picture is. And the statistics don’t seem to be forthcoming so we hope that there can be a much comprehensive detailing of what the final debt figure is for Zambia. Everyone is anxious to know what it really is.”

He suggested that the government should release the Debt Sustainability Analysis for all stakeholders to understand the country’s debt position, among others.

“Let them [government] produce the Debt Sustainability [Analysis] report, which shows the position; are we still in sustainable realms? And a much more comprehensive picture is what should be demanded because the other people (stakeholders) have been saying the guaranteed debt is as good as government debt because these parastatals may not pay for that debt,” he narrated.

“So, those are the arguments. And I think it is better to put the picture very, very clear rather than insisting on a figure when the other quarters seem to insist that Zambia’s debt is higher than what is being given.”

Meanwhile, Dr Mphuka hoped that Zambia could still clinch a much-needed US $1.3 billion IMF economic bailout package to shore up the country’s balance of payments support.

“We hope that something can work out because it’s important that we have that programme. As Economics Association, we are very keen on having government to come up with a programme. So, it’s sad that up to now, we seem not to be moving,” said Dr Mphuka.

         

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