Debt-ridden Zambia has no option but to ask IMF for help
Its currency has depreciated by 23% against the dollar and Covid-19 has forced down prices of copper, which accounts for most of its exports
Maputo — Zambia’s only option is to seek a bailout from the International Monetary Fund (IMF) as years of excessive borrowing coupled with the effect of the coronavirus pandemic have left it struggling to pay its debts, the main opposition leader said.
The country’s eurobonds have been among the world’s worst performing this year and its currency has depreciated by 23% against the dollar as the global Covid-19 pandemic halts supply chains, forcing down the price of copper that accounts for most of Zambia’s exports. The economy will shrink by 3.5% this year, according to the IMF.
“There is no choice here, the government has to come to the table,” United Party for National Development president Hakainde Hichilema said in an interview on Tuesday. “There isn’t a way out other than being part of the multilateral community.”
Zambia’s debt has climbed over the past five years as it boosted infrastructure spending, and credit-ratings agencies, including Fitch, have warned it’s now at a high risk of default. Last month the finance ministry called for proposals from advisers for what it calls a liability-management exercise that seeks to re-organise external borrowings, which totaled $11.2bn at the end of 2019.
Debt could exceed 100% of GDP this year without extensive restructuring, including debt relief, according to Paarl-based NKC African Economics. While Zambian finance minister Bwalya Ng’andu has said the government started the process to apply for emergency IMF funding, efforts to get balance of payment support from the fund for the past five years have failed.
The unsustainable nature of Zambia’s current debt profile may complicate its appeal for help. The IMF said last week that for a country to benefit from emergency funding, its debt must be “sustainable or on track to be sustainable”.
The government urgently needs to conclude a deal by the end of the year with the IMF because the economy is “on the verge of collapse”, three former Zambian finance ministers wrote in an open letter to President Edgar Lungu this week, saying, “An IMF deal is essential to resolve the debt problem.”
Zambia isn’t the only regional country grappling with mounting debt.
Angola had its credit ratings slashed and the yield on the struggling oil producer’s dollar eurobonds jumped to more than 30% this month. Nigeria, Ghana, Gabon and Cameroon all have eurobonds that traded at spreads of more than 1,000 basis points over US treasuries, the point above which the securities are considered to be distressed debt.
Zambia must avoid defaulting and should rather look at joining a continental effort to restructure loans, Hichilema said. The AU has already started pushing for debt relief as its members battle to contain the economic fallout of the pandemic.
“We are [too] small to operate outside [a continental effort], we are too weak,” he said. “We have to be part of the bigger team.”
The veteran opposition leader, who plans to run against Lungu again next year, has little faith in the state’s ability to win over creditors.
On Tuesday, the government threatened to revoke mining licences owned by Glencore after the company idled some operations due to the drop in copper prices.
Earlier in the month it stopped a private television station critical of the government from broadcasting.
Said Hichilema, “We are heading for a crisis if those in office continue to behave like this.”
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