Zambia is likely to refinance its first US $750 million Eurobond that falls due in less than three years’ time because the country remains at high risk of defaulting, says the Centre for Trade Policy and Development (CTPD).

CTPD researcher Bright Chizonde observed that government had already defaulted on local debt obligations in a bid to avert defaulting on external loans.

Chizonde also noted that refinancing of the bonds would come at a huge cost to the country.

“The first one is coming due very soon (in 2022), but then, we have been advocating for government to be able to put in place issues or set aside for the bullet payment for the Eurobond to be paid, but most likely the government will decide to refinance the Eurobond. The challenge that is there is that the cost of refinancing will be very high because of the issues that I was talking about: the credit ratings which are falling. So, looking at the Eurobonds, yes, it’s possible for them to refinance, but then there will be a challenge because of the cost and even the appetite for investors in order for them to go for the refinancing of the Eurobond. So, there is a challenge with respect to Eurobonds,” Chizonde said in an interview.

“With respect to external debt, the risk of defaulting is very high, so we are at a high risk of defaulting, that is the opinion of the International Monetary Fund, the opinion of different stakeholders, African Development Bank. So, we have been told over and over again that our debt is not sustainable and we are at high risk of defaulting and if we default on our external debt, so if I think a lot of people have said with respect to external debt that they have been fighting trying not to default. Defaulting means that we fail to service, meaning that an interest payment that has become due. So, the risk of defaulting is quite high and that’s why the issue of setting up a Sinking Fund is important in order for us to meet the Eurobond bullet payment.”

And Chizonde bemoaned the rate at which government was defaulting locally.

“So, government has been mopping up resources from all the different sectors, from itself, every different sector in order to make sure that we don’t default to make those interest payments. The impact, now, is that we are defaulting in terms of domestic obligations; government is not remitting money to different quasi-government institutions, we have a challenge in terms of domestic arrears, which are due. So, we are defaulting, domestically, so to say, but because we don’t want to default externally. Domestic debt is easy, obviously, but recently, the government has problems even with respect to domestic debt in order for them to find investors to go for Treasury Bills and the bonds. So, I think there has been a turn in terms of (reduced) subscriptions with the domestic debt so we really have a problem. I think it’s directly linked to the issue of liquidity in the economy,” said Chizonde.

“We have also contracted a significant (amount of) Chinese (debt) and some of the terms and conditions are actually not even known with respect to what are the conditions, what are the terms behind the contraction, but this debt has gone into different projects like the National Airports and other infrastructure projects. So, we have Chinese debt and then we also have domestic debt.”

Apart from the first Eurobond that matures in 2022, Zambia has a second bond worth US $1 billion that needs another single bullet payment in 2024, while the third bond of US $1.25 billion will be amortized between 2025-2027.