Centre for Trade Policy and Development cautions Zambia’s Govt

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The Centre for Trade Policy and Development-CTPD welcomes government efforts in trying to find solutions for Zambia’s debt problem; key among these includes the
recent assigning of a team of Ministers to travel to China for debt restructuring
negotiations as well as the request made to the Turkish Government.

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These efforts
are welcome as they can produce alternatives to solving the ballooning debt Zambia has accumulated.

However, CTPD would like to urge government to pursue this agenda with great
caution and avoid projecting desperation if we are to find sustainable solutions that
will help Zambia navigate through this growing crisis without further indebting the country.

Secondly there is need to clearly define what we hope to archive or get out of this restructuring efforts we have commenced, otherwise failure to do so will just leave the country in more debt.

With regards to the move by the Zambian government to seek help in refinancing
the US$ 750 million Eurobond scheduled to mature in 2022.

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CTPD is of the view that
refinancing the loan at this time may translate into increased costs due to the
suspended IMF bailout program package, Government should concentrate on realizing fiscal consolidation and the operationalization of a sinking fund.

The Ministry of Finance informed the general public in 2017 that the government would operationalize a sinking fund that was to help government set aside funds for the repayments of Eurobonds when they fall due after 2021.

This strategy had the
potential to reduce the risk of default and ease pressure on debt servicing when the
Eurobonds Mature.

Bond refinancing works better when a country’s credit rating and macroeconomic conditions improve because this could translate into lower yield rates on bonds. If the yield rates fall below the coupon rate of the Bond, refinancing using the same
terms as the original bond would translate into savings.

Furthermore, the terms of the new bond can be altered to allow for better repayment terms.

For Zambia, following the increased illusiveness of the IMF bailout package, and the adjusted
debt-sustainability assessment from medium to high risk of debt distress, Zambia’s dollar securities became the worst-performing in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index, which includes more than 70 countries.

CTPD is of the view that the Zambian government should first work on improving its
credit worthiness by reengaging with the IMF and pursuing visible fiscal
consolidation. Bond refinancing can then be done at reduced cost to the Zambian people.

We are in agreement with the recent recommendations advanced by the IMF’s Resident Representative when he said government should not to tap into the international market at this time as the financing conditions are pretty tight right now, and would be very expensive.

CTPD urges government to trade cautiously as it explores refinancing options, there will be need to count the cost and clearly establish payment plan from the very onset, otherwise it may turn out to another huge cost to the Zambian economy and the Zambian people.

If Zambia is to acquire a bilateral financing bailout from Turkey, at what cost will this be? What is in it for turkey?

We call upon the government to publish full details of the reported 12 trade and economic deals signed with Turkey, this will help the public to know and appreciate what we may be getting into as a
country.
Isaac Mwaipopo (MR)
Executive Director
Editor’s Note:

The Centre for Trade Policy and Development is local economic think tank on trade and investments.

CTPDs core mandate is to influence the use of trade and investments as tools
for economic growth and human development.

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