– Government will struggle to repay debt that has increased by 176 percent since 2011
By Francis Maingalia
LUSAKA, Zambia – Zambian Government debt has risen by 176 percent since 2011, and analysts say that the state does not have the means to repay it.
Documents from the Ministry of Finance shows that Zambia’s total public debt is $9.75 billion dollars. This debt is made up to $6.05 billion external debt and $3.7 billion domestic debt. The total public debt has increased from $3.5 billion in 2011 to about $9.75 billion today, an increase of 176 percent.
Zambia has three outstanding Eurobonds, the first for $750 million issued in April of 2012, the second for $1 billion issued in June 2014, and the third issued in July 2015 for $1.25 billion.
But the country will struggle to pay the interest on these bonds, according to the Zambia Institute for Policy Analysis and Research (ZIPAR), which estimates annual interest on the bonds at $240 million. The amount required to service interest and repay the principal is about $440 million annually, according to the institute.
Because the Eurobond debt is in dollars, the government will have to pay considerably more in the weak kwacha which it earns – the Zambian currency has lost about 30 percent against the dollar in 2015.
But this is not the only portion of the debt that poses challenges for repayment, according to Economic Association of Zambia (EAZ) President Chrispin Mphuka.
“It is most likely, the Zambian government in its current form will not be able to raise the outstanding debt contracted to our Chinese lenders. The government will have to contract more debts to settle these loans,” Mphuka said in an interview with Anadolu Agency on Wednesday.
According to Mphuka, there is a shortfall of $642 million in the funds provisioned to completely settle the over $3 billion debt the Zambian government owes to China.
“The economic slowdown resulting from depressed commodity prices and low productivity has put the Zambian government under serious financial stress, and revenue collection has not only been compromised, but significantly reduced,” Mphuka explained.
The loans from China are intended to finance infrastructure projects.
But economist, and opposition Rainbow party official Cosmos Musumali told Anadolu Agency in an interview on Tuesday that the funds will have to be used to finance Zambia’s fiscal deficit.
That deficit is a threat, said Public Sector Development Association President Yusuf Dodia in an interview with Anadolu Agency on Wednesday.
“Unless action is taken to sharply reduce the deficit, there is a high risk of debt once again rising to unsustainable levels,” Dodia said.
He said that there is no monitoring mechanism to check how much the government is borrowing and repaying. According to the Auditor General’s report at the end of last year, some old debts contracted on the capital markets in 2012 have not yet been serviced, Dodia noted.
A study carried out by the Jesuit Center for Theological Reflection (JCTR) in 2014 revealed that government debt contracted between 2012 and 2013 was spent servicing loans made between 2003 and 2005.
The government may need all its funds to service outstanding debt, and will thus not have more to service infrastructure and government programs, the report said.
Dodia said that, without a change in policy, government debt is likely to rise to over 50 percent of GDP by 2018, from 30 percent of GDP in 2013.