Economist Chibamba Kanyama says the rise in yields on Zambia’s Eurobonds to 10 per cent for the first time in almost 18 months is a sign that the country’s economy has caused anxiety among investors.
Kanyama was commenting on a Bloomberg report that yields on Zambia’s 2027 Eurobonds had risen to 10 per cent for the first time in almost 18 months, and had exacerbated the pains for holders who had since incurred losses of 11 per cent.
He told News Diggers! in an interview that investors are selling off their bonds because of information that Zambia’s debt situation is becoming unsustainable, a situation he said has caused a rise in the yields of the country’s Eurobonds.
According to Kanyama, the rise in Eurobond yields implies that Zambia will pay the debts at a premium instead of the lower rates that were initially agreed on.
“It’s becoming difficult. Every day, the higher the yield gets, the more difficult it becomes for Zambia. Number one, it means that we are going to pay a premium. The rate is getting higher. It means that people are selling off our bonds. It is a signal of anxiety. It is really becoming tighter in terms of serving the debt. It’s becoming tighter, the higher the yields, the tighter it becomes for us, for the country. It’s beginning to be very, very difficult,” Kanyama warned.
“My worry is not so much about what the penalty we are going to pay for is; and it’s not so much about how expensive the debt is becoming for the country; it’s not so much about how unsustainable it will be for us. The bigger thing, for me, is the signal this is sending. It is sending the signal that our debt position is unsustainable. And most of the investors are beginning to send information that is not in public domain, unfortunately, by behaving the way they are behaving. They are sending information that we need to capture as a country, we need to capture what is it that they are saying. Because when you see a yield is getting higher and higher, your focus as a country, and the Ministry of Finance, and all other investors is to see who knows what information, which is not in public domain.”
He urged the Ministry of Finance to be more proactive in calming anxieties of investors that may be trading on negative information about the country.
“There is information that investors have captured, which is not in [the] public domain. And they are trading on this information; they are making their decisions based on this information. And all we know [is] this information is not positive information that these investors have. It’s not in public domain, but they have it. And it’s not favourable information and we can only speculate most of us. It’s up to the government to come up and send a signal that look; ‘the information that you have and trading on is not correct.’ That’s the message that the Ministry of Finance is supposed to issue. They should be quick and react to say look; ‘we know you are making these decisions based on information that you have received from third parties or whoever,’ but we want to send you the correct information so that you make you decisions based on the right information,” Kanyama narrated.
“My speculation is based on two things: one, it could be based on the dead-end IMF programme. It could be that the investors have heard it from Washington D.C. that the IMF is no longer interested.”
He added that investors are speculating that Zambia’s debt situation is becoming unsustainable, adding that the situation has caused uncertainty, even for potential investors.
“I think that’s the information that they may be having because those people have got networks, by the way. In fact, they have strong networks than our own government have on the international fora. So, they may have hooked into some information to do with the possibilities of the IMF programme, and it could be I’m just speculating, too, based on their behaviour, that perhaps the information they have is that the IMF programme is dead. It is not so much about growth per say at the moment, it’s much more,” he explained.
“And this is the other signal because I don’t think it has to do much with President Lungu not accepting an IMF programme. At the level where we are as a country, we have no choice but to accept IMF money. Not the money per say, but what goes with the IMF programme. That is where we are. We are at a position where we have no choice but to accept IMF money, not only for the money, but for what goes with the money in that it builds on the credit profile.”
He stressed the importance of Zambia clinching that elusive IMF economic bailout package, estimated to be around US $1.3 billion to boost the country’s balance of payments support.
“It helps [the] credit profile and credit rating to enable Zambia access concessional loans. Because what we need right now are concessional loans, not commercial loans. So, it unlocks the opportunity for Zambia to access cheaper money,” he said.
“The other signal which is that I think the investors are aware that the Minister of Finance [Margaret Mwanakatwe] is committed to an IMF programme. And she really is committed to a programme. It’s a question of whether the IMF itself wants to deal with Zambia anymore. That’s the signal. That’s why you are seeing the yield like that. And number two, the investors are overly concerned. This is what the investors themselves have told me that they are worried about the [gross international] reserves [currently standing at US $1.8 billion]; this not a speculation. They are worried that the reserves are too low and now with an IMF programme not materializing, they were so confident that after Washington, they were very sure that the IMF programme would be underway,” Kanyama observed.
“And they were all phoning around. They wanted to know did this take place, was this discussed? And I think what they captured was that nothing [was] really materializing. And perhaps the IMF itself is developing cold feet. So, they are worried that the reserves are low. This is what they have told me. These are the bond holders, by the way, those that have lent money to the government and are worried about the nature of the reserves and that’s why you have seen one of the reasons the yield is behaving the way it is behaving. And then you are seeing the kwacha tumbling at the same time.”
Kanyama advised Mwanakatwe to rationalize her team of technocrats, address concerns from investors and call for a meeting with the International Monetary Fund (IMF) in a bid to clinch the much-needed package.
“So, they have read a signal about the reserves, and they have read a signal about the IMF programme and my final advice is that, I have the full confidence in the Minister of Finance. I am also confident that she has a robust team; let her rationalize her team. In other words, develop key people within her team, key people. I’m very sure that if she can bring her team together and look at what the concerns of the IMF are. Address those key concerns; send a message on the fiscal management of the economy now and in the long-term and if she can call for an IMF meeting even before the end of June, and not focus on Article 4, but focus on the bigger picture and let this be done as an urgent issue. I’m highly confident that we can win,” said Kanyama.
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.
Zambia’s external debt position has rapidly leaped to US $8.7 billion by the end of last year, up from US $6.9 billion by December 31, 2016, while domestic debt has ballooned to K50.9 billion as at March 31, 2018, compared to K38.6 billion in May last year, according to official Ministry of Finance data.