FINANCE Minister Dr Bwalya Ng’andu says the country has also been defaulting on other loan obligations and could therefore not favour the bond holders, above other creditors, because all creditors should be treated equally.
And Dr Ng’andu says an International Monetary Fund team is expected in the country next month to discuss an adequate intervention needed to help the country.
Speaking on ZNBC’s Sunday Interview, Dr Ngandu said until October, the country had been paying the bondholders but decided to default in order to maintain talks with other commercial creditors.
“The reason why we thought it was necessary for us to do this with the bondholders was that we have been paying bondholders, even the coupon payments are due every, we make coupon payments bi-annually, so we have been paying up until October. Now, I need to mention that because of the fiscal challenges I have explained to you, we had started accumulating some arrears with other commercial creditors because our position at that point was, ‘you have written to us asking us to give you a service standstill but at the same time, you continue to pay bondholders, so are we kind of inferior to the bondholders?’ So that already had started complicating our situation so we were very mindful of the fact that if we didn’t get a debt service standstill agreement with the bondholders, the decision to make that payment will be a very difficult decision because what it will do is it will make our conversation, our engagement with other creditors almost impossible because their view will be okay fine, this is what we expected you to do that in fact, we give you a debt service standstill so you can pay the bondholders,” Dr Ng’andu said.
“The same argument the bondholders had used before which was that if we give you a debt service standstill, you are going to pay the other commercial creditors. Now, I am saying this for you to understand that the game is not about paying these guys and not paying the other guys, the game is about agreeing with everybody else because the moment you pick one and pay one, it creates a problem with the other. So that was the issue so we were seeking that we get an agreement from everybody.”
He insisted that government would not pay the US$42 million due to bondholders because it would upset other creditors.
“Yes, we shall not pay because of the principal of pari passu, meaning treat everybody equally. I have already defaulted with some other creditors. I have told you I have been building arrears with other creditors and they are upset that I am building arrears with them while I continue to service the Eurobond, that’s where the problem is, you can’t continue with the situation where you pick one set of creditors and treat them differently from he others in this kind of situation,” he said.
“The issue of paying bondholders alone is a fundamental problem with the other creditors. And remember this, the bondholders make up only one third of my debt stock, US$3 billion that I am owing in the three notes. I have the other balance, the other balance is commercial creditors, some multilateral lenders like the World Bank, now, the moment I pay the US$42 million to the bondholders, my entire conversation with all the other creditors collapses, they will not be interested in discussing, they will just take a view that in the same way you are treating those guys, treat us.”
He said Zambia hadn’t made much progress in convincing other commercial lenders to suspend repayment as they were all waiting to see whether the country would pay the bondholders.
“Up until now, it’s only the Chinese development that has agreed, others we are still discussing and the reason we haven’t made much traction was that everybody was waiting to see what we do with the bondholders. They were sitting there waiting. This is an opportunity for you to show to us that you are serious about what you are saying which is that there are serious fiscal constraints which require a period of debt service standstill so that you can then organise yourselves,” he said.
Dr Ng’andu wondered why the bondholders expressed concern over the disclosure of information on Chinese loans when they refused to sign a confidentiality agreement that was going to ensure they got all the information they needed.
And Dr Ng’andu said the country’s debt was expected to keep rising because of the disbursements that were expected to be done towards priority projects that were nearing completion.
“Yeah. There are a number of projects that will continue to be implemented. Now let me explain this to you that as a result of the ongoing discussions that we are undertaking with the various creditors, we have been required to, as part of the debt suspension, request that we are making to all the creditors to indicate which projects we consider to be priority projects so that we sort of exclude them from the process and these projects are projects to do with very key areas like water and sanitation. I can give you an example, I did mention the example if the Kafulafuta water project. That is a project that will provide water to about a million people on the Copperbelt in three districts and it’s reached an advanced level. It will be a pity to stop it at this point, in fact it will present a waste of resources. And there are such projects like the Kenneth Kaunda International Airport, it’s reached a level of advancement where its almost complete and there are really just a few things left to be done and if you stop that project, it would not make economic sense. So there are projects like these that will continue and the debt stock will likely rise,” he said.
Meanwhile, Dr Ng’andu said the default would not have an adverse effect on the exchange rate as foreign financiers were currently playing a very small role in the market.
“You need to understand the dynamics of the foreign exchange market, how it works to the extent that something like this may affect inflows. Yes, to some extent it may but if you look at what is happening in the foreign exchange market right now, in fact, maybe in the last six months or so, because of the challenges we have had this year, the foreign financiers are playing a very small role in the market. The participants in our bonds and domestic bonds and treasury bills, including the offshore investors are also very small at this point in time so the initial impact at this point in time from that I think is limited. What it does is that it gives us bad publicity. We are not looking to borrow,” he said.
He said the external financing indicated in the 2021 budget was not additional borrowing but disbursements on already contracted loans
He added that the country’s total debt, inclusive of domestic debt, currently stands at 102 percent of GDP, which is a very stressful position for the country.
Dr Ng’andu said some creditors were of the view that IMF Article 4 consultations were not adequate and that the Fund would next month send a team to discuss the intervention that will be needed to help the country.
“A team is supposed to be coming next month for us to finalise agreement on exactly what specific intervention we are going to use. Is it the extended credit facility, is it a staff monitored program and all those are things that we need to discuss. After we have done that, we will know exactly which way to go. So it’s like there is no engagement going on, there is a lot of talking behind the scenes but the IMF will be ready to speak when they are ready to speak,” said Dr Ng’andu.