The Economic Intelligent Unit (EIU) report has indicated that Zambia will continue to deepen its relations with its main bilateral creditor China, and in exchange, Chinese state-owned lenders will probably agree to a debt restructuring preventing a sovereign default.
However, the EIU projects that the restructuring will be on the proviso that the government borrows more (albeit at a lower rate) for a string of Chinese-contracted infrastructure projects and potentially allows debt-for-equity swaps on state-owned enterprises.
As a consequence, the government’s dependence on China will be a double-edged sword providing some financial relief in the short term, but compromising relations with Western donors and investors as well as jeopardizing long-term debt sustainability.
The EIU report further stated that an IMF loan deal is not expected to be reached in the medium term given planned public borrowing by government slowing down economic growth in the country.
The report states that economic policy will remain erratic with sudden changes to the regulatory environment as the government attempts to meet its spending needs. Without external support, policy will be erratic.
The IMF has warned that unless there is a slowdown in new borrowing, debt management will become difficult and has since recommended that government avoid contracting any new non-concessional debt and has proposed stepping up the raising of revenue and halting the build-up of new arrears as well as aligning the pace of spending on well-targeted public investment projects.
The IMF is not expected to agree a deal with Zambia within the forecast period and traditional donors will also stay away amid concerns about corruption, authoritarianism and uncontrolled borrowing.
Meanwhile, the country’s economic growth in 2019 is projected to be at 3.0% with monetary conditions expected to be tight and a combination of factors hampering agriculture and mining.
The Agricultural output has been struck by drought and a below-average harvest causing the government to ban food exports while dry weather has likewise affected power generation at the Kariba hydroelectric dam raising the prospect of power supply gaps affecting industry.
President Lungu is on record to have asked Zambia’s bilateral and multilateral partners to allow the country chose its own friends. Zambia has had a history of being non aligned. Zambia attends both the US-Africa and China-Africa summits to network and maintain relations with the the two world’s largest economies.
