Financial Analyst Trevor Hambayi has urged the Finance Minister to prioritize debt restructuring to a sustainable level to grow the international reserves as well as help stem the pressure on the Kwacha.
Hambayi noted that the international reserves were being depleted because of the need to pay debt, which is unsustainable. These huge payments are made in US dollars and this is resulting in perceptions and actual increased in demand for US dollar
According to the Bank of Zambia – BOZ, Gross international reserves declined by US$117.7 million to US$1.2 billion equivalent to 2.4 months of import cover at the end of 2020 from US$1.3 billion at the end of September equivalent to 2.3 months.
This decline was largely attributed to the need for foreign exchange interventions, debt service as well as Fuel and Fertilizer imports.
Hambayi observed that Zambia’s international reserves were being depleted because the country has to pay a debt that is unsustainable. Debt restructuring if executed would result in reduced monthly or scheduled payments but increased tenor, which would reduce the amounts being utilized for debt servicing.
He said this is the reason why the Government needs to restructure debt and ensure that it is sustainable and in a situation which it cannot put pressure on government to have to dip into the reserves to meet the debt liability payments.
“The first consideration the country should be having is restructuring our debt situation; our reserves are being depleted because we have to pay a debt that is unsustainable.
“So we need to restructure our debt so that the debt is sustainable and it is not in a situation of having to put us in pressure to dip into our reserves to meet those debt liability payments,” he said.
Hambayi who is also senior managing partner at the Development Finance Associates (DFA) said there is also need to work towards economic recovery in order to increase the Gross Domestic Product (GDP).
He said the increase in GDP will enable the country generate more revenue which will speak to creating a sustainable recovery in terms of international reserves.
“We need to work towards economic recovery. Our economy needs to recover so that we can increase our GDP, when we do increase our GDP, we will generate more revenue, which will speak to creating a sustainable recovery in terms of our reserves as well,” Hambayi said.
He said Government should ensure that the country gets the right returns from the mining sector. Hambayi said the long-term strategy is to be able to develop to support domestic investments.
He said government should support small scale miners to start to develop their mines so that they are producing copper for which the revenue that they are going to generate is going to remain in the country.
“That is a long term strategy and it is absolute. When the number of local investors increases, domestic investors increases beyond foreign ones then we will find that we are generating more revenue and foreign exchange that is staying in the country than the ones that are externalizing,” he added.
He said Government needs to put in place the right policies, which are speaking to supporting or incentivizing domestic investors and allow the private sector to be able to have access to finance to be able to invest in the mining sector or any other sector of the economy that is export oriented.
Hambayi said, “This will enable the economy to start improving and have an increased GDP growth as well as increased US dollar inflows. This is what is going to change the dynamics in our foreign exchange reserves.”
BoZ has started building up gold reserves and released a schedule of gold buying targets. Experts say this is a welcome move but there is need for a more aggressive gold buying programs and gold reserves build up.
Restructuring the debt remains the immediate solution to current economic challenges that would then be boosted by the medium to long term built up gold reserves. The ministry of Finance hired an international firm Lazard to help in the process of debt restructuring but no monthly updates are being made of its work to the public.
