Lusaka — Zambia will cancel or downsize project loans worth about $5bn as the nation tries to rein in runaway external debt that is increasing its risk of default.
The government has about $7bn in pipeline external debt — loans contracted but not yet disbursed — and plans to slash this to about $2bn, finance minister Bwalya Ng’andu said on Wednesday.
That would add to Zambia’s existing external debt stock of $11.2bn at the end of 2019, which the International Monetary Fund (IMF) forecasts would rise to 66% of GDP by the end of 2020. External borrowing has soared from $1.7bn a decade ago as the government embarked on an ambitious programme to build roads, airports and increase electricity generation.
“The external debt portfolio was extensively reviewed and relevant stakeholders engaged to identify and assess already contracted project loans,” Ng’andu said in a statement. “These were then subjected to a defined criterion to determine their suitability for cancellation or re-scoping.”
Investors are worried whether the government of Africa’s second-largest copper producer will be able to make the first payment for a total $3bn in Eurobonds that falls due in 2022. Yields on its dollar debt have topped 20% in recent months.
While debt holders might be comforted that Zambia will scrap $5bn in pipeline debt, the $7bn of yet-to-be-disbursed loans come as a surprise as they were not disclosed in external debt numbers.
The country’s economic expansion could exceed 3% this year, Ng’andu said. That compares to a 1.7% estimate by the IMF. Inflation is expected to remain high in the first quarter after quickening to 12.5% from 11.7% in December, he said.