DEBT REMEDY!

BONDHOLDERS’ rejection of Zambia’s request for six- month suspension for debt servicing, has placed the domestic economy on the knife edge.

Firstly, it is important for Government and stakeholders to admit the precarious position of the country even before seeking solutions.

The rejection of the debt relief and the subsequent default will have negative effect on the country and the citizens, hence the imperative need to work out a remedy to ameliorate the resultant impact.

Bondholders are commercial creditors on the capital market who obviously want to sustain profit levels by ensuring that they collect what is due.

Thus in a situation of an outright default, bondholders usually recall the principal amount instantly. The implication is that the relationship with bondholders changes.

As a consequence, the rating agencies downgrade the defaulting country to junk category.

This means, therefore, that the country’s access to the capital market becomes extremely difficult and expensive.

It is also true that a defaulting country drifts into a non-investment area as brokers and international advisory firms will invariably advise their clients not to risk their resources in such an environment.

However, there is still space for Zambia to negotiate with bondholders under the Cure Period, instead of resigning to a defaulting curve.

There are some countries that have come out of the default mess in recent times.

Argentina in September this year defused a messy default after commercial creditors allowed the country to exchange 99 per cent of the bonds in $65 billion restructuring deal.

At the time, Argentina announced that a deal and a separate restructuring which together brought financial relief of $37.7 billion.

That said, Zambia needs to move on a path that will avert a major economic crisis, moving in tandem with all stakeholders.

Nothing should be left to chance, given the already tight fiscal space, with a number of competing demands such as financing the civil service wage bill.

It is worth noting that Zambia has $3billion of Eurobonds outstanding and owes $2billion to commercial banks, $2 billion to the World Bank and the International Monetary Fund. There is also $3billion owed to China.

These are no small amounts at all!

As Government engages bondholders and other creditors, due attention should also be given to growth prospects, especially in the agriculture sector which does not require foreign investment.

Therefore, Government must boost the agriculture sector through incentivizing the small-scale farmers to enable them diversify from seasonal maize growers.

Small-scale farmers must be encouraged to grow millet, cassava and sorghum, which are drought resistant and also grow groundnuts, sunflower, soya beans, cashew nuts, beans, potatoes, cotton and tobacco.

Access to markets must be improved because even the maize which they grow year-in-year-out can only be sold to the Food Reserve Agency. The farmers cannot export the maize because of the Government- imposed export controls.

Agriculture for now is a sure remedy, considering that it will address food security, provide job opportunities, especially in the countryside and also provide raw materials for the manufacturing sector.

Extension services should be boosted to avail the farmers with technical information while the Zambia Meteorological Department must be on hand to give accurate and timely weather information to farmers.

While the Government tackles the debt crisis, equal attention must go into full exploitation of agriculture as the sector is home-grown.