. Baldini

By HELEN ZULU –
THE International Monetary Fund (IMF) has advised the Zambian Government to avoid contracting non-concessional loans in order to put its debt on a sustainable path.
And the Zambia Institute for Policy Analysis and Research (ZIPAR) has warned that Zambia is at risk of defaulting on repaying the principal amounts on the three Eurobonds due 2022-2027 because of the high-risk debt distress.
IMF resident representative Alfredo Baldini said public debt had been rising at an unsustainable pace and had crowded out lending to the private sector and fiscal consolidation, restraint on non-concessional borrowing, and strengthened debt and public investment management capacities were needed to put the debt on a sustainable path.
MrBaldini expressed concern at the pace at which public debt, especially external debt, had increased as it had now put Zambia at high risk of debt distress.
He said while there was need to address infrastructure gaps, it was important to maintaindebt sustainability and to do this, it was critical to slow down on the contractionof new debts, especially non-concessional loans.
Equally important in this regard was the need to strengthen debt management capacity and improve project appraisal and selection processes.
Mr Baldini was speaking yesterday during a debt management conference organised by ZIPAR under the theme ‘Zambia’s Public Debt: The elephant in the room.’
“Public debt has been rising at an unsustainable pace and has crowded out lending to the private sector and increased the vulnerability of the economy,” MrBaldini said.
“The outstanding public and publicly guaranteed debt rose sharply from 36 per cent of Gross Domestic Product at end-2014 to 60 per cent at end-2016, driven largely by external borrowing and the impact of exchange rate depreciation.
“Therefore, fiscal consolidation, restraint on non-concessional borrowing, and strengthened debt and public investment management capacities are needed to put debt on a sustainable path,” he said.
Mr Baldini said that the near-term outlook for the Zambian economy had improved in recent months, driven by good rain and rising world copper prices, and that the tight monetary policy succeeded in stabilising the exchange rate and slowing down year-on-year inflation to 6.6 per cent in September 2017.
And ZIPAR research fellow SheboNalishebo said it was clear that Zambia was at a high risk of debt distress and defaulting on repaying the principal amounts of the three Eurobonds which were due during 2022-2027.
MrNalishebo said that between 2017 and 2021, the Government would spend about US$237.4 million per annum as interest payments towards the three Eurobonds, which was about the entire social protection budget.
He said the Government needed to start the strategies for paying back the Eurobonds now to meet the principal and interest payments on the bonds instead of waiting up to 2019.
MrNalishebo said the Government should also consider issuing a local bond for small investors to widen domestic creditor sources which would help in mitigating the risks associated with domestic borrowing.
“Government should consider other options, including refinancing.
Refinancing remains an alternative option that could be used hand-in-hand with the Sinking Fund,” he said.
Ministry of Finance investments and debt management department director MasitalaMushinga said the Government would proactively explore mechanisms for Eurobond redemptions such as the Sinking Fund.
Ms Mushinga said un-concessional or commercial debt would be considered only for projects with high economic returns.
“We will also expand the investor base (and) financial inclusion initiative to promote Government securities in conjunction with Bank of Zambia through targeted outreach programmes which will be undertaken,” she said.