Zambia’s debt service arrears hit $1.5billion

The Zambian Government has accrued cumulative debt service arrears of about US$1.5 billion following the debt service standstill put in place for all its non-multilateral creditors not participating in the Debt service suspension initiative (DSSI).

The ministry of finance however spent a reduced total of US$88.09 million as debt service payments comprising of principal pay down of US$ 65.17 million and interest payments of US$22.92 million respectively in the first half (H1) of 2021.

According to information made available to the Zambian Business Times – ZBT, the significant reduction in external debt service payments in comparison to US$410.62 million recorded in 2020 for the same period was due to the debt service standstill that the Government put in place for all its non-multilateral creditors not participating in the Debt service suspension initiative (DSSI).

This was aimed at allowing Government time to review its debt portfolio in view of the scheduled restructuring discussions with the creditors.

And Former Secretary to Treasury Fredson Yamba said arising from the debt service standstill, Zambia’s cumulative external public debt arrears amounted to US $1,475.89 million as at end June 2021, of which US $ 1,005.5 million were principal arrears (included in the debt stock), US$470, 347.2 million were interest arrears and US$6. 84 million were other debt charges.

“A total of US $624.51 million was accrued as arrears between January and June 2020, of which US $379.3 million were principal arrears and US $240.4 million were interest arrears.

“Debt service further reduced as a result of the debt service suspension granted to Zambia by members of the G20/Paris Club and other private creditors from January to June 2021, under the DSSI extension,” he said.

Yamba said Government’s external debt stock as at end June 2021 increased by 1.3% to US $12,909.85 million from US $12,738.30 million as at end December 2020. He said the increase was on account of continued disbursements on existing project loans largely from multilateral institutions and supplier creditors to finance on-going priority infrastructure projects.

Yamba explained that the proportion of Commercial debt to total public external debt was 46% in the first half of 2021 accounting for the largest proportion, with the Eurobonds accounting for 51% of commercial debt.

He said bilateral debt accounted for 30%, while multilateral debt (including plurilateral) accounted for 24%.

“In the first half of 2021, Government contracted one new concessional loan amounting to US$105 million as additional financing for the Girls Education and Women’s Empowerment and Livelihood Project (GEWEL).

“The funds were earmarked for support to girl’s education and women empowerment,” Yamba disclosed.

He said the stock of domestic debt contracted through issuance of Government Securities, grew by 38.42% to K180.24 billion as at end-June 2021 from K130.21 billion as at end December 2020. Yamba said the increase was necessitated by the need to finance the budget.

He said in terms of borrowing by instruments, Government bonds accounted for 80.42% while Treasury Bills accounted for 19.58%.

“The stock of Government Bonds stood at K144.94 billion compared to K97.21 billion at end December 2020, while the stock of Treasury Bills also increased to K35.30 billion from K33.01 billion as at end December 2020. This represents a percentage increase of 59.02 % and 6.93%, respectively,” Yamba added.

The Zambian Government has accrued cumulative debt

Zambia’s loans to private sector among lowest in Africa

Association of Microfinance Institutions of Zambia (AMIZ) has urged the President Hakainde Hichilema and his government to look at ways and initiatives of supporting Micro, Small and Medium Enterprises (MSMEs) in accessing credit from both banks and non-bank financial institutions to unlock the huge potential of the sector.

Speaking in an interview with the Zambian Business Times – ZBT, AMIZ  President Webster Mate noted that Zambia’s private sector credit to Gross Domestic Product (GDP) ratio is amongst the lowest in Sub-Saharan Africa.

According to the World Bank data, private sector credit to GDP for Zambia stood at 15.6% in 2019. Mate said this situation affects the creation of jobs in the country considering the fact that MSMEs employee the majority of Zambians.

He said in this regard, the association would like to see more being done in area of supporting initiatives that can facilitate access to credit for MSMEs and individuals in the informal sector.

“In medium to long term, this economy needs revamping, its good that the new President is already talking about more investments in the mining sector, investment in agriculture, and hopefully we begin to see more in the SME sector because as you might know, private sector credit to GDP in Zambia is amongst the lowest in sub-Saharan Africa.

“So if credit is not going in the productive sector particularly the MSMEs, then how do you create jobs. From a micro finance perspective, we would like to see more being done in the area of supporting initiatives that can facilitate access to credit for the small local businesses,” Mate said.

He said the government should work on stabilizing the economy, which, has been depressed for a sometime. Mate said the depression in the economy has led to the high cost of borrowing in turn resulting in suppressed lending to MSMEs.

He said, “In that regard, we would love to see more being done in the area of high cost of business operations. As you may know Zambia is the high cost economy and our interest rates are what they are because those that provide finances are bearing a lot of risks and at the same time their own costs of operation are quite high that it then reflects on the interest rates.

“I think time has come for us to begin to see what is causing this, so that we try and unbundle it so that it can come to a level where our costs become reasonable. Because if someone is going to borrow at 60-80% in an environment where the economy is not even growing, it becomes difficulty to see how he or she will be able to service that kind of debt.

That is why you see that there is more consumer lending than lending to productive activities because consumer lending is premised on the lender having preferential access to individuals or to the borrower’s salary,” Mate said.

He said the association believed that for this situation to turn around, there was need for macro economic stability in the country. Mate lamented that even if private sector credit to GDP is still low, micro finance institutions do not inject capital in their operations in order for them to increase lending and develop their capacities to lend.

“We think micro finance institutions in this country need to begin doing that but to do that, they also need some assistance and this is where Government in partnership with its cooperating partners can come to the aid of micro finance institutions to provide capacity building.

“You know training is costly and because it is not their core business, it will be good if public finances can help them build that capacity because once they are capacitated they will begin to grow their outreach and be able to reach more people with financial services,” he added.

Association of Microfinance Institutions of Zambia (AMIZ)

BOZ uncertain at what exchange rate the Kwacha will stabilize

The Bank of Zambia (BOZ) says it cannot state at which exchange rate the Kwacha will stabilize and settle at against the US dollar. This follows a period of rapid appreciation of about 30% within four weeks that has caused mayhem for both importers and exporters as far as planning is concerned.

When asked to at least share a projected range were the Kwacha to US dollar exchange rate pair would settle by the Zambian Business Times – ZBT, BOZ Governor Christopher Mvunga said the market dynamics will dictate where the rate will eventually sit as the country has a free floating exchange rate system.

Mvunga said the central bank does not hold or dictate the exchange rate but it may intervene to ensure price stability.

Speaking during the Monetary Policy Committee Announcement and Press Briefing, Mvunga said the bank of Zambia sells US dollars when there is a shortage on the market and buys the dollars when there is excess supply.

He explained that the country has a Liberal exchange rate regime and a Liberal market therefore only the market can dictate where the kwacha will sit depending on economic dynamics.

“I can’t tell you whether it will be at K5, whether it will be K17, whether it will be K20, I can’t tell you because we have to monitor the market and the market will dictate”, he said.

Analysts have questioned this policy were the Zambian Central bank has adopted to go with the utopian free floating regime which some have described as academic proposition rather than a practical method.

Without a target range, there is no way of holding anyone responsible for whatever rate the Kwacha trades with the dollar. There is need in Zambia to come up with a mechanism were a target range is set and announced so that there is some level of responsibility around the currency expectations.

The newly inaugurated UPND government is on record to have pledged to deliver an exchange rate of at least K10 per US dollar. From the the four weeks appreciation run so far, it looks more viable that Zambia may get back to a single digit trading exchange pair between the Kwacha and the US dollar.

The Bank of Zambia (BOZ) says it

IMF should instead help Zambia retain forex than just increase debt

The International Monetary Fund – IMF should not just look at lumping more debt on Zambia’s existing debt burden but instead help the country on how best it can retain forex back into the country from its boosted copper exports.

With improved International prices, Zambia is currently exporting more than US$30 million worth of copper a day, our total copper export earnings could be around K35 to 40 million per day. So if we are saying K40 million per day, in 10 days its K400 million and 30 days its K1.2 billion, so why do we still need to borrow and be put on an IMF bail out package when we could alternatively look at how a significant volume of our current exports could be banked locally?

The Private Sector Development Association (PSDA) has stated that it is important for Government [through the ministry of finance] to publish what criteria the International Monetary Fund – IMF bailout package is based on and how it is going to help the Zambian economy.

PSDA chairperson Yusuf Dodia said at the moment the IMF program is shrouded into too much secrecy and haste to the extent that people are becoming suspicious about the true intentions of the getting on an IMF bailout program.

Speaking in an exclusive interview with Zambian Business Times – ZBT, Dodia said it was important for the country to understand what conditions the IMF bailout packages comes with and also to appreciate why the IMF are interested in giving Zambia money.

He said, “furthermore, we are exporting more than US$30 million a day in copper exports, our total copper export earnings could be around K35 to 40 million per day. So if we are saying K40 million per day, in 10 days its K400 million and 30 days its K1.2 billion, so why do we still need the package?

“So the amount of money we are intending to get from the IMF is equivalent to one month of exports of Zambian products, so do we need to go the IMF way or could we use our export earnings as something to re-capitalize the economy?”.

“So the question is what are the strings or conditions that are attached to the IMF?, we need to be clear about that. We also need to appreciate why the IMF are interested in giving us money instead of helping us to retain the resources which we have from exports,” Dodia said.

He said these were very tricky issues that needed to be discussed and understood before going for the programme.

Dodia explained that, “We need to get a better eye view to say if we get this package how is it going to help because usually the conditionalities coming from the IMF will be to protect the foreign investors and yet it’s the foreign investors who are actually making the country poor.

He said looking at how much copper is leaving Zambia every day and yet Zambia does not get much [forex] out of it in terms of resources coming back into Zambia, there is need to ask ourselves these questions.

“We need to ask ourselves, is it worth it to allow all this copper to go like that? Why is the IMF not seeing it as problem that needs to be addressed? So at the end of the day, people have become suspicious of the role of the IMF, is it going to help Zambia or to keep Zambia in debt or to put Zambia into further debt.

So I think it is important for us to really reflect on what is going on, on the ground on this programme,” Dodia added.

Newly appointed Finance Minister Dr. Situmbeko Musokotwane who has returned to this role for the second time after having served in the MMD government has come under public scrutiny for his open haste to conclude the IMF extended credit facility which he un-solicitedly announced that he will conclude before the end of this year 2021.

Dr. Musokotwane has not been able to clearly explain or give credible examples of which African country has ever gotten better off after getting on an IMF program, has not been able to publish the conditionality’s under discussion as well as other key contentious issues of his impending deal.

The new finance minister has been challenged to be more transparent and move cautiously to ensure that collective Zambian interests are taken into consideration before this deal is closed. Zambia’s history with the fund is not rosy and the calls to act with caution when it comes to IMF is not unfounded.

The International Monetary Fund - IMF should