Finance Minister Dr Bwalya Ng’andu says the country’s external debt has risen to $11.2 billion from the $10.23 billion as at end of December 2019.
And Dr Ng’andu says the International Monetary Fund (IMF)’s demand that Zambia should demonstrate debt sustainability before getting a bailout package is like being given an umbrella after the rains.
And Dr Ng’andu says the novel Coronavirus, which has now been named Covid-19, may have adverse effects on the country’s exchange rate.
At an economic briefing in Lusaka, Wednesday, Dr Ng’andu said Zambia’s debt stock had risen.
“When I last updated the nation in July 2019, the stock of external debt at end-June 2019 was $10.23 billion. The stock has since increased to US$11.2 billion as at end December 2019. This was on account of new disbursements on existing loans mostly earmarked for infrastructure development. The stock of Government securities at end-2019 was K80.2 billion from K60.3 billion at end-June 2019. The increase is explained by the issuance of Government securities to finance the budget deficit for 2019. The stock of domestic arrears, excluding VAT, amounted to K26.2 billion at end-September 2019 from K20.2 billion at end June 2019,” Dr Ng’andu said.
He government was considering the legal implications of undertaking a debt re-profiling exercise.
“In my address in July 2019, I indicated that the Ministry of Finance would engage different Government ministries in order to agree on projects to be slowed down, re-scoped, canceled or postponed. We proceeded to undertake this process. The outcome of these consultations was a Cabinet memorandum which Cabinet considered on 20th December, 2019. At its meeting, Cabinet directed that the following measures be undertaken: (a) A moratorium on contraction of external project loans; b) Cancellation of selected external project loans; (c)Re-scoping of selected externally financed projects in order to reduce the project cost, and ultimately reduce the undisbursed loan balance,” he said.
“The moratorium on contraction of external project loans will apply mainly on non-concessional financing. Regarding cancellation of selected external project loans, the external debt portfolio was extensively reviewed and relevant stakeholders engaged to identify and access the already contracted project loans. These were then subjected to a defined criterion in order to determine their suitability for cancellation or re-scoping. The Government is currently reviewing the legal ramifications of undertaking the debt re-profiling exercise and will subsequently engage with lenders and contractors.”
Dr Ng’andu said the measures which had been put in place were destined to return the country to debt sustainability.
“The reduction in the undisbursed debt by cancellation and re-scoping of selected project loans, coupled with the moratorium on project loan contraction, will contain the rise in the debt stock and position the country on a sustainable path. These measures are aimed at reducing the current undisbursed external debt of approximately US $7 billion by about US $5 billion. The re-scoping exercise in the road sector will reduce project costs from K10 billion to K1.4 billion. As Government, we will ensure that we implement the debt management measures as directed by Cabinet. We will also enhance revenue collections whilst remaining mindful of the need to support private sector growth. We will continue to engage cooperating partners to support our growth and development agenda,” Dr Ng’andu said.
“Through implementation of the measures that I have outlined, we shall return the country to debt sustainability and get the economy on the path to recovery. The measures and policies are sound and should have the support of the Zambian people. What is required is effective and sustained implementation. We are therefore, all called to action.”
And asked for an assurance that Zambia would get an IMF deal, Dr Ng’andu refused to give a guarantee, saying instead that clinching a bailout package was dependent on Zambia’s ability to exhibit debt sustainability.
But he said this was like handing an umbrella to someone after the rain.
“I indicated that the IMF are coming. I can’t tell you whether we will have the program or when we will have the program this is a result of a discussion. The IMF have certain expectations from us and we have to discuss what definition code in the program. I can tell you this because I think I have already spoken about this, they were very clear that one thing they would like to see before they can head down to the program is that we exhibit debt sustainability. Now the problem with that is there and I did mention to them in a meeting that ‘when you say that ‘you can only have a program after you have exhibited debt sustainability, it is like you are given an umbrella after the rain. Is it possible that we can have a meaningful discussion?’ I think what they were looking for was an indication from us that we begin to take measures that point to the right direction,” Dr Ng’andu said.
He said if it were up to government, Zambia would have gotten a programme last year.
“But I am sure when we are done with them, we’ll be able to give you an update. Just remember that it doesn’t entirely depend upon us if it was up to us, we could have had the program last year but we just have to discuss and see whether we can have it,” he said.
Dr Ng’andu said an IMF team would be in Zambia between March 18 and to April 1.
“The last formal meetings between the Government and the International Monetary Fund were held in Lusaka from 13th to 19th November, 2019. The IMF Mission was in the country at the invitation of Government to discuss recent economic developments and the economic outlook for 2020 and the medium term. Based on the outcome of the mission in November and the debt and fiscal measures I just alluded to, Government will work with the IMF to define a working relationship with them and determine the nature of its support to the Government. We have written and advised the Fund of the measures that Government is undertaking to address debt sustainability. The next engagement with the Fund will be held from 18th March to 1st April, 2020,” he said.
Meanwhile, Dr Ng’andu said Covid-19 could negatively affect Zambia’s trade volumes.
“What I know myself is that China itself has taken measures to control and maintain the number of people living the country and I think those measures are very convincing. But we also on our side taken some certain measures to ensure that people entering the country, people who are coming from areas which we suspect could be accessible to this type of illness are identified and isolated where necessary. So what I can say is that this has the potential to disrupt movement of people into China and Zambia. I hope it is a short term measure with the kind of effort made across the globe, we see an end to this as soon as possible. It has a potential impact to destabilize things quite substantially,” said Dr Ng’andu.
“It is difficult at this point [to predict] how long it will last but like most of these viruses, we have Chicken flu, it comes and goes quickly, I am keeping my fingers crossed that this is one of them but we will see. All we can do, let us prepare ourselves for the fact that if it disrupts China’s ability for example to buy copper from us and thereby reducing the liquidity, we will have a problem in the sense that our foreign exchange inflows will be affected adversely and for that, we need to make projections in terms what the impact will be on the exchange rate but it is something that we are keeping in mind.”