ECONOMIST Professor Oliver Saasa says the President-elect Hakainde Hichilema’s win has excited many people because they are confident that he will put together a good management team and improve government’s image, which will translate into better economic fortunes for the country.
And Prof Saasa predicts that Zambia, under President-elect Hichilema, will finally clinch an IMF programme.
According to Bloomberg, Zambia’s Eurobonds and currency rallied after Hichilema scored a shock landslide victory in the nation’s presidential election.
Zambia’s $1 billion of Eurobonds due in 2024 jumped 11% to 74.14 cents on the dollar by 2:49 p.m. in London, the biggest gain since March 2020.
Commenting on this in an interview, Prof Saasa explained that there was confidence that the new Head of State would change economic fundamentals in the positive.
“A change of government or the death of a government official, usually a Head of State, will lead to market sentiments and anxiety as to what might happen. Elections, if for example there is a favoured person who is believed that when they get into office or for example lead to bad policies that might upset the economic fundamentals, then you will find the nervousness on the part of those who are holding coupons or those that are owed money. So, there will be some kind of worry. Therefore, you will have an adverse effect on those arrears. Where there is positivity, like whoever is coming in is likely to change the fundamentals in the positive, he is likely to negotiate better, is likely to pay our debt, then we see a certain level of positivity emerging,” Prof Saasa said.
“You have seen even the interest rates; we are lucky that the exchange rate has significantly improved by the increase in exchange rate mainly from the mines. So already, it has been positive. Otherwise, these economic fundamentals are influenced by the market sentiments, what the investor believes has happened, positive or negative.”
He said the image of the previous administration was considered negative.
“The image of the previous government has been considered to be negative, mainly because of our behaviour. When you saw in October, November last year, there was a feud with the bondholders of our Eurobond, we went through and made promises about restructuring our debt, promises of the possibility of us being able to pay. Again, there were also political statements that we were not able or willing to pay. So, what happened? We applied for a moratorium, which was rejected, because they were not convinced that we had the capacity to come up with the debt strategy that will make them receive their money. Then they rejected the request. That rejection didn’t make any difference for us. We came out and said ‘whether you have rejected this six months, we have requested to put a hold on repayment, we are not going to pay you’. So, essentially what it means is that we have not projected any image of a trustworthy government that can service what is due to those who we owe money. That in itself has put us in a very bad light.”
And Prof Saasa said President-elect Hichilema’s win had excited many people.
“We are the only country, the first country actually that defaulted on Eurobond payments during the beginning of the COVID-19. That is a very bad image. So, the coming in of Hakainde has excited a number of people. There are a number of reasons why they are excited, firstly they are excited because they believe he may put together a good management team that will work with them. Secondly, a good image of government will lead to positive sentiments from investors, both foreign direct investors or portfolio investors,” said Prof Saasa.
“If the Hakainde government wants to borrow globally through the Eurobond floatation, we are likely to be over subscribed. Over subscription means that if you go there and you are looking for a million dollars, there will be people that will come and offer $12 billion. So, you can actually access that money at yields that are more attractive and relatively normal. So in other words, you might pay more if they suspect you are not a good guy. Again, there is a probability of the IMF programme coming in because they can see they have confidence in the government. IMF coming in means that the IMF will have systems and structures and processes of monitoring that will secure compliance and good economic management,”