Zambia’s external debt breaches 40% GDP threshold

Zambia’s external debt of over US $10 billion has breached the internationally-acceptable threshold of 40 per cent relative to Gross Domestic Product (GDP), data shows.

And the Zambia Institute for Policy Analysis and Research (ZIPAR) says the country’s increased total public debt has moved Zambia closer to a debt crisis.

According to data contained in the Ministry of Finance’s Green Paper, Zambia’s estimated GDP for the 2019 fiscal year stands at K300,169,200, roughly equivalent to around US $25 billion, while the country’s external debt has leaped to US $10.05 billion by the end of last year.

This means that Zambia’s external debt to GDP ratio has now increased to 40.2 per cent, breaching the acceptable limit of 40 per cent.

The acceptable and sustainable external borrowing threshold in Zambia is 40 per cent of GDP.

As far back as 2014, Zambia’s external debt was only around US $4.7 billion, representing a debt-to-GDP threshold of around 15 per cent.

But as late as the end of the second quarter of 2018, the stock of external debt had rapidly climbed to US $9.37 billion, representing around 34.7 per cent of GDP and was still below the internationally-agreed threshold of 40 per cent.

However, since the external debt kept rising to hit US $10.05 billion by the end of last year, Zambia’s debt-to-GDP ratio breached the 40 per cent threshold.

Coupled with domestic debt that had equally increased to K58.3 billion at the end of 2018, compared to K48.4 billion in 2017, the combined public debt to GDP ratio likely hit Fitch Ratings’ revised projections of 69 per cent of GDP by the end of 2018, up from 60 per cent recorded in 2017.

And commenting on the increased debt levels, ZIPAR research fellow Shebo Nalishebo stated that the country’s increased total public debt had moved Zambia closer to a debt crisis.

“Considering the estimated GDP for 2019 is K300bn, the new external debt numbers suggest that we have now breached the 40 per cent threshold for external debt (i.e. $10.05bn*K12/$ /GDP). We are already in breach of the debt to revenue threshold, therefore, that much closer to a crisis,” stated Nalishebo in response to a press query.

A country’s debt-to-GDP ratio is the ratio between a country’s government debt (measured in units of currency) and its Gross Domestic Product (GDP) (measured in units of currency per year).

A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.

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