The Zambia Institute for Policy Analysis and Research (ZIPAR) has called on government to put in place comprehensive structures for sovereign bonds.
ZIPAR says government should put in place sound, forward looking and comprehensive debt management structures to ensure that the country’s sovereign bond issues do not turn into a financial disaster.
ZIPAR Executive Director Pamela Kabaso stated that though Zambia’s debt is currently sustainable, investing in projects with high a rate of return must be prudently undertaken to avoid the risk of default that would escalate into a crisis.
Dr. Kabaso noted that the country’s strong economic growth averaging over six percent per annum has made it an attractive destination for investors as they are always chasing high yielding bonds.
She was speaking during a ZIPAR media breakfast meeting at Raddison Blue Hotel in Lusaka today.
The ZIPAR Executive Director also observed that that though Zambia is a second-time issuer of the Eurobonds, its experience and therefore information on international sovereign bonds is still limited.
Dr. Kabaso however stressed that borrowing from international capital markets can provide financing for projects that can help to diversify the country’s export base and bring in earnings.
Meanwhile, ZIPAR Research Fellow Shebo Nalishebo disclosed that Zambia is currently paying US$130 million interest rate per annum on its sovereign bonds.
He said the interest government was paying on the sovereign bonds was therefore crowding out social sector spending.
Mr. Nalishebo said there is need for the country to come up with a mechanism that will ensure that the nation borrows prudently to avoid ending up with unsustainable debts.
He also stated that Zambia’s B+ or B rating by some international rating agencies like Fitch is nothing to celebrate about as it is four notches below the investment grade.