By JUDITH NAMUTOWE –
DEVELOPING countries, like Zambia, are opting for bonds because concession loans and bank financing are too small to meet huge infrastructure requirements in energy and transport sectors.
Zambia Institute for Policy Analysis and Research (ZIPAR) public finance research fellow Shebo Nalishebo has said the bonds are becoming increasingly attractive in developing economies.
He said, unlike other forms of financing, bonds reduce pressure for credit in domestic market and the current conditions are right – low interest rates in developed markets and ample liquidity.
Presenting a paper on the Eurobond during the ZIPAR media breakfast meeting in Lusaka yesterday, Mr Shebo said concessional loans and bank financing were limited.
“Bonds give Government more autonomy, conditionalities may not be consistent with national priorities and reduces pressure for credit in domestic market,” Mr Shebo said.
Mr Shebo said Zambia was becoming attractive due to high yields, with a better return than would be received in more developed markets given a strong economic growth averaging over six per cent.
He was, however, quick to state that the Eurobond comes with a number of disadvantages with the major one being the risk of making the Government borrow more than it should. Mr Shebo said that there were other concerns about high interest payments of about US$130 million per year and debt unsustainability as well as the risk of defaulting when bonds mature.
“International investors are always chasing high yielding bonds. Zambia is an attractive destination for investors,” he noted.
Officiating at the occasion, ZIPAR executive director Pamela Nakamba-Kabaso implored the Government to put in place a sound, forwarding-looking and comprehensive debt-management structure, to ensure that Zambia’s sovereign-bond issues did not turn into a financial disaster.
“While the issuance of sovereign bonds should be one of several avenues of broadening Government financing instruments, we believe that efforts should also be made towards broadening options for Government financing,” Ms Nakamba-Kabaso said.
In the last few years, the issue of public debt has taken centre stage coming in the wake of the Government issuance of two bonds one for $750 million and another one for $1 billion.
