Zambia will struggle to refinance Eurobond going into 2021 – EIU report

By Staff Reporter

Zambia will struggle to access much-needed concessional loans that might help refinance part of its Eurobond stock on more favourable terms, the London-based Economist Intelligence Unit has charged in its latest country report on the southern African nation.

The report which comes amidst growing international uncertainty that Zambia like neighbouring Mozambique could be concealing the extent of its debt situation, projects that the Zambian government will have to recourse to International Monetary Fund (IMF) funding eventually but at a great cost.

“The government will have to recourse to IMF funding eventually, but given the rapid build-up in public debt in recent years, we now expect an assistance package to be agreed in 2019 after the government adopts a tighter fiscal stance and the new finance minister, Margaret Mwanakatwe, has been able to implement meaningful steps to control debt accumulation,” the EIU stated. “Some difficult reforms and fiscal austerity measures will be required to secure and maintain IMF backing but, without the boost to creditor confidence that comes with a programme, Zambia will struggle to access much-needed concessional loans (domestic debt is costly) and, perhaps most crucially, refinance part of its Eurobond stock on more favourable terms.”

The EIU indicates that the IMF package would be central to the country’s seventh national development plan (NDP7), spanning from 2017 to the election year of 2021, and at the heart of which is an attempt to stimulate value-added industrialisation in the mining sector and economic diversification.

“For this to work, policy stability – something the government has struggled with in the past – is being stressed as vital, but we remain sceptical, with high copper prices already emboldening the government to make ad hoc interventions in the mining sector,” the report reads further. “Questionable regulatory changes have already been made and, although some measures will be reversed, further interference could include export taxes on unprocessed goods and local content requirements that will undermine investment in the long run. Still, upward adjustments to electricity tariffs should see a wave of private investment in the energy sector, supporting a slow expansion of power generation.”

The EIU also points out that although the PF-led govermment’s fiscal policy will tilt towards consolidation to win over investors and the IMF, the political will to tighten fiscal policy came into increasing doubt since Felix Mutati was removed from the finance ministry.

“Although the new finance minister, Margaret Mwanakatwe, has pledged to continue with the agenda of her predecessor, she is more embedded in party structures than he was and so will struggle to persuade an unwilling Cabinet to accept fiscal consolidation,” the EIU observes. “There is enough of some consensus for some budget cuts to be implemented….These include further cuts to electricity and fuel subsidies, as well as winding down the input support programme for farmers. Cuts in personnel will be harder, and resistance from the Cabinet will impede reforms to state-owned enterprises and to ministerial expenses.”


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