ECONOMIST Professor Oliver Saasa says the presentation by Minister of Finance Dr Bwalya Ng’andu before the creditors fell short of the needed clarity and detail to give sufficient comfort to the Eurobond holders, hence their rejection of the request to defer repayments.
In an interview, Prof Saasa, the CEO of Premier Consult, regretted the Eurobond holders’ decision to turn down Zambia’s request to suspend interest payments for six months but called on government to reflect on where they went wrong and urgently take corrective actions.
“With the benefit of hindsight, the President and his Executive require to reflect deeply as to where things could have been done differently, especially given the urgency of taking effective corrective actions in the light of the serious economic challenges that the country is facing,” Prof Saasa said.
He advised the government to come up with a bankable document that could be guided by well spelt-out fiscal consolidation interventions and should be on the table before serious negotiations with external actors could yield anticipated results.
“While Dr Bwalya Ng’andu presented a fairly good case regarding the fiscal stress the country faces, thus, justifying why the half-year suspension of interest payment could bring the needed relief, the Government also needed to have anticipated more shrewdly what could have been the basis of a possible rejection of its proposal. A clear and comprehensive Economic Recovery Programme that is guided by well spelt-out fiscal consolidation interventions is key and should be on the table before serious negotiations with external actors could yield anticipated results. Before approaching bondholders and, indeed, the IMF, Government must, therefore, come up with a bankable Document with clear strategy on what it intends to do; by who; within what timeframe; and the indicative resource envelope well spelt out. The objectives of such a rallying Programme must be clearly spelt out with the required fiscal reform measures made known. The role of the private sector as the engine of economic recovery has to also come out clearly, including what the Government sees as the required stimulus packages to enable the economic players survive during the post-COVID period,” Prof Saasa noted.
“Government ought to realise that creditors and multilateral institutions that the country hopes to bring to the roundtable to discuss its fiscal and monetary challenges (which include the IMF) and expect less of what the Government plans to do and more of what it is actually doing or has done at a number of critical levels…Unfortunately, the document that the Minister of Finance presented to the Bondholders, while it fully acknowledged the value of doing this, fell short of the needed clarity and detail, which could give sufficient comfort to creditors. That is precisely what they have also said and Government needs to take heed.”
He advised that attributing the current economic challenges entirely to the COVID-19 pandemic would be unhelpful as was likely to disregard some of the important internal systemic issues that required attention towards correcting the situation.
“The most important first step the Government ought to take is to diagnose accurately the causes of the challenges that need urgent attention before fuller engagement with bondholders or with any other creditors. At this level, any attempt to attribute the economic challenges the country currently faces almost exclusively to the COVID-19 pandemic is not helpful because, with such posture, the Government is likely to disregard some of the important internal systemic issues that require attention towards correcting the situation. To accurately diagnose all the causes of the debt problem, both COVID and non-COVID, external and internal, it is essential to be comprehensive so as to identify fully all the required remedies. We should all agree that COVID-19 has had a debilitating effect on the country’s economic fortunes since early this year and, granted, well thought-out responses around this challenge are important going forward,” Prof Saasa said.
“The pandemic has caused serious stress on both economic growth prospects and the health status of the nation. The country’s challenge at this level has been exacerbated by the limited external response, itself a development that requires deep introspection in the light of the reality that many other countries in Africa with similar challenges have received a disproportionate share from the global bilateral and multilateral responses.”
He added that the extent to which Government was seen to be addressing Zambia’s crippling external vulnerabilities was of paramount importance prior to effective engagement with the external actors.
Prof Saasa further argued that under the circumstances, it was difficult for the IMF and bondholders to believe that government meant business and deserved to receive the moratorium on its repayments.
“One would understand why the IMF and bondholders are seemingly reluctant to believe that, indeed, the Government now means business and, hence, the country deserves to receive the moratorium on its repayments. And a clearly articulated and effective implementation of upfront actions, we all ought to agree, is essential to secure the needed confidence from Zambia’s external lenders prior to the commencement of meaningful dialogue around addressing the economic challenges the country is facing. It is for this reason that bondholders are not convinced when the Minister put it in his submission to them, that ‘Zambia intends to use the debt standstill period to devise a credible debt strategy and conduct consultations with creditors’,” he said.
“To me, it seems to be a chicken-and-egg thing: Do you first get a payment reprieve before you develop a bankable debt strategy or its development or existence should be a precursor to convincing the external actors that you are serious about taking corrective actions? This is important for several reasons, one of which being the reality that, irrespective of how much a sovereign is desperate, external lenders are traditionally reluctant to lend to a country, let alone restructuring the debt owed, whose public debt is considered considerably unsustainable unless a well-argued strong assurance is made and demonstrated that the Government is both willing and able to engage in a strategy that would restore debt sustainability. The key word here is demonstration…”
He, however, noted that government has embarked on good interventions such as the issuance of the K8 billion COVID-19 bond that is targeting the stimulation of economic activity and should be made part of a clearly articulated and comprehensive Action Plan that addressed the COVID-19 and post-COVID-19 recovery.
“Government has embarked on fairly good interventions that are worth of note by its creditors, which have included the issuance of an K8 billion (about US$394 million) COVID-19 bond that is targeting the stimulation of economic activity and supporting livelihood; and the K10 billion (about US$493 million) that targets a medium-term refinancing facility by Bank of Zambia. These positive efforts should, however, not be free-standing but made part and parcel of a clearly articulated and integral part of a well-conceived and comprehensive Action Plan that addresses the COVID and post-COVID recovery,” said Prof Saasa.