Zam­bia’s for­eign -debt may be higher than the gov­ern­ment knows

Zambian Business Times - - FRONT PAGE -

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...

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 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.

Peter At­tard Mon­talto. Pic­ture: FI­NAN­CIAL TIMES

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