Debt servicing hitches cited
DEBT servicing in 2022 could gobble a huge chunk of domestic revenue
thereby making it difficult
for Government to invest in priority sectors because of poor performing Eurobonds, Professor Oliver Saasa, chief
executive officer of Premier
Consult has said.
Prof Saasa has therefore urged Government to avoid contracting debt through issuing Eurobonds as the interest payment increased when the Kwacha depreciated
The country has so far issued three Eurobonds with
the first one (US$750 million)
falling due in 2022.
Prof Saasa warned that the cost of servicing debt on Eurobonds increased when the Kwacha depreciated substantially because interest payments were payable in
United States dollars.
Zambia has issued three Eurobonds amounting to
US$750 million in 2012 and US$1 billion in 2014 which are due to be paid in 2022 and
2024 respectively, while the US$1.25 billion issued in 2015
will be due for repayment in
2027.
Prof Saasa expressed
concern that the first Eurobond of US$750 million
was currently one of the worst performing bonds on the market.
He was speaking yesterday in Livingstone during a
presentation on Zambia’s Economic Outlook at the fifth
annual general conference organised by the Insurers Association of Zambia.
“Trial run for 2022 when
the first Eurobond falls due
suggested that: Increase in
debt servicing costs (K9.4bn)
is higher than the increase in
domestic revenues (K7bn),
which means that all the gains in revenues will be channeled to debt servicing costs
“Debt servicing costs will
gobble 42 percent of domestic revenues. At 7.9 percent
of Gross Domestic Product
(GDP), debt servicing costs
will be comparable to 8 percent of GDP usually spent on personal emoluments,” Prof Saasa explained.
Prof Saasa said Zambia’s
surging public debt was largely skewed towards costly commercial external debt due to issuing Eurobonds and increased export and
suppliers’ credit.
He said Zambia’s current
debt had made future borrowing more risky and limited opportunities to invest.