Peter Attard Montalto. Picture: FINANCIAL TIMES
Peter Attard Montalto. Picture: FINANCIAL TIMES

Zambia is facing tough questions over its foreign-debt levels from investors who think the real number may be more than double the government says it is.

Lenders, including Nomura Holdings, believe the state hasn’t come completely clean on how much external borrowing it’s undertaken. This is raising concern that the country may be headed for a similar situation to neighbouring Mozambique, where hidden debts led to default, and the government is seeking to restructure.

"Zambia is in somewhat of a serious predicament of having politically connected additional ‘unknown’ loans," Peter Attard Montalto, head of emerging Europe, Middle East and Africa economics at Nomura International in London, said in an e-mailed note on March 27. "The hidden-loan problem, in our view, is likely one of short-term external debt that is at least as big as known external loans and external bonds combined."

For Zambia, Africa’s second-biggest copper producer, external debt is key. It’s been the main stumbling block in sealing a $1.3bn loan from the International Monetary Fund (IMF) that it needs to bolster foreign-exchange reserves, which fell to a seven-year low in November. The government has been on an infrastructure-spending spree over the past five years. That’s seen external loans soar to $8.7bn at the end of December from $2bn in 2011.

Already, it’s feeling the strain. The government wants to restructure Chinese state-backed loans, and now also wants to "reprofile" the $3bn in eurobonds it borrowed between 2012 and 2015, finance minister Margaret Mwanakatwe told reporters in Lusaka on Friday. In two weeks, her department will complete a detailed debt-sustainability exercise, she said.

"Only the government knows its level of debt, and the government then shares that with the public," Mwanakatwe said when asked about speculation that Zambia’s debt may be higher than the government said it is. "I’ll be doing that on a quarterly basis."

Even then, the state doesn’t seem to be so sure. At Friday’s briefing, Mwanakatwe originally said the external-debt figure was $8.9bn then later corrected it to $8.7bn. And in June, her predecessor, Felix Mutati, told parliament it had increased to $17.2bn — he later corrected himself, saying the actual figure was $10bn lower.

The rapid increase in external debt has put Zambia at high risk of debt distress, the IMF said in October. The bulk of new loans, besides the eurobonds, has come from China and is going towards building new infrastructure including roads and airports. Contractor-financed projects with no clear tendering processes increased their costs, according to the African Development Bank.

The IMF has requested that Zambia’s government undertake an independent audit of its foreign debt, according to Attard Montalto. Alfredo Baldini, the fund’s resident representative in Lusaka, didn’t immediately respond to e-mailed questions.

Still, there is no concrete proof that Zambia has "unknown" loans, Gregory Smith, a sovereign-debt strategist at Renaissance Capital in London, said in a note to clients on Thursday.

"Since Mozambique’s hidden debts became apparent, there has been concern about where else this might happen," said Smith, who was previously an economist with the World Bank in Lusaka. "Zambia has been singled out as a potential source of hidden debt. But there is no hard evidence to suggest the probability is higher there than for other sovereigns of similar credit ratings."

Mwanakatwe, who was named finance minister in February, will meet with investors in London later this month and will hold a non-deal roadshow in May.