ECONOMIST Professor Oliver Saasa says Zambia might not be able to handle the consequences of defaulting on payment of interest due today as the bondholders meet to vote on the status of the country’s request for a six-months moratorium.
In an interview, Prof Saasa warned that the expected hard default might lead to the country’s assets being grabbed.
“…But there is a challenge, because you see, a default tomorrow Friday the 13th, a hard default which might happen tomorrow is more serious because when there is a hard default, where we are defaulting on the Eurobond bullet payment that’s due, which is US$1 billion. If you defaulted tomorrow, the bondholders have a right to demand not only the amount you have defaulted on which is debt servicing, they have the right to demand the full settlement at one go. In other words, the default entails that they can bring forward the bullet payment to now. Of course if you fail to pay interest, you cannot pay the principle and therefore it means that they may get rough by talking and looking at grabbing Zambian assets, if we have Zambian assets abroad for example,” Prof Saasa said.
“The implication is that we are likely to get into a rough patch in the event that tomorrow they will vote against the extension of this moratorium of six months break. And the implication really can be quite dire and one hopes that it doesn’t get there because of course it means that foreign direct investment will be affected, it means that our opportunities or hope to get to a programme with the IMF might be in jeopardy, the rating agencies might be unkind to us in reclassifying us deeper into a junk status and that essentially means access to finance especially on the capital market or elsewhere would be near impossible or at a very high price to Zambia. So all those will most probably be implications that are too ghastly to contemplate but probably let’s wait and see how it turns out.”
He said the insistence on transparency by bondholders had been due to fear of government paying the Chinese at the expense of other debtors during the moratorium period.
“You recall that one of the reactions from the Eurobond holders, initially in that first round before, last month on the 14th, their position was that ‘we cannot consider positively the request for a moratorium for Zambia unless there is transparency regarding the debt that it owes to the world’ and one of their concerns, and I think that was expressed through analysis by a number of media houses, even international media houses that there was a concern that if they gave the moratorium, the money might benefit others like the Chinese and in the sense that they give the moratorium, the fact that you have not satisfied that obligation, you probably are using the opportunity for non-payment at the Eurobond level to meet the obligation from the Chinese. So the insistence was be transparent, make sure that you declare everything so that we know who else you owe. That was the position and I think it’s mainly from there government considered that the pari passu approach is better,” said Prof Saasa.
“The government position is to adopt the position of pari passu meaning that all those that Zambia owes should be treated in the same way. They gave some exemptions of where some payments can be made but the whole intention of government is to make sure that no one believes that any payments that are made are to the advantage of another party that is owed money. So the negotiation is more or less like we can only pay after and when we are able to meet and satisfy everybody fairly. Now, that is an issue that of course must have been decided at the highest level also taking into account some of the multilateral offers of trying to maintain a certain level of fairness.”