Do­mes­tic Debt Bal­loons to USD5.1bil­lion

Zambian Business Times - - FRONT PAGE -

Africa’s sec­ond largest cop­per hotspot, Zam­bia has in the last two years recorded a 115.7% rise in do­mes­tic debt from the Kwacha equiv­a­lent of USD5.1bil­lion from USD2.56bil­lion lev­els. How­ever, a wor­ri­some piece is that this dou­bling is not backed by a sim­i­lar pat­tern in gross do­mes­tic growth rate. Ideally one would ex­pect that jus­ti­fi­ca­tion for a higher debt ap­petite would come with ris­ing needs to ex­pand the econ­omy.

Africa’s sec­ond largest cop­per hotspot, Zam­bia has in the last two years recorded a 115.7% rise in do­mes­tic debt from the Kwacha equiv­a­lent of USD5.1bil­lion from USD2.56bil­lion lev­els. How­ever, a wor­ri­some piece is that this dou­bling is not backed by a sim­i­lar pat­tern in gross do­mes­tic growth rate. Ideally one would ex­pect that jus­ti­fi­ca­tion for a higher debt ap­petite would come with ris­ing needs to ex­pand the econ­omy. For Zam­bia the econ­omy has grown by an in­fin­i­tes­i­mal amount. Dur­ing the mon­e­tary pol­icy an­nounce­ment by the Gov­er­nor Dr. Denny Kalyalya on Wed­nes­day 16 May, it was es­tab­lished that the stock of out­stand­ing do­mes­tic debt for Zam­bia is K50.9bil­lion. This fig­ure is com­prised of K30.6bil­lion in bonds and K20.3bil­lion in trea­sury bills.

A rise in debt ap­petite should trans­late to some level of growth es­pe­cially if the bor­row­ing is for cap­i­tal ex­pen­di­ture as op­posed to ab­sorb­ing re­cur­rent ex­pen­di­ture needs. One would ex­pect that a dou­bling in do­mes­tic debt from 2016 pe­riod would have been ex­plained by sig­nif­i­cant GDP growth which is not the case for Zam­bia. The re­cent bud­get com­mit­ment to fund the fis­cal side with 60% do­mes­tic and 40% ex­ter­nal has brought do­mes­tic debt un­der more scru­tiny. The Min­istry of Fi­nance will be ex­pected to fi­nance 4% of GDP with the Kwacha equiv­a­lent of do­mes­tic debt trans­lat­ing to USD1.1bil­lion.

How­ever, a USD250mil­lion debt in­curred in Q1: 2018 ver­sus a USD1.1bil­lion tar­get gives a pic­ture of where gov­ern­ment is at and the last two un­der-sub­scrip­tions in trea­sury bill sales are a source of con­cern be­cause this could threaten the drive by gov­ern­ment. Be­ing in the mid­dle of an IMF ne­go­ti­a­tion for USD1.3bil­lion which doesn’t seem likely to close this year has made the state step up its ef­forts to widen the net of po­ten­tial sub­scribers to these debt of­fer­ings as was men­tioned at the launch of the road show for sen­si­ti­za­tion of gov­ern­ment se­cu­ri­ties in Lusaka.

Of the do­mes­tic debt K12,6bil­lion is in ar­rears re­flect­ing obli­ga­tions owed to sup­pli­ers of ser­vices to the gov­ern­ment that have not paid and are di­rectly linked to com­mer­cial banks con­tribut­ing to the rise in non-per­form­ing loans – NPLs which have bal­looned to 13% ver­sus the 10% reg­u­la­tory limit. With the ad­vent of NPLs com­mer­cial banks are skep­ti­cal of do­ing busi­ness with con­trac­tors and this has im­pli­ca­tions on eco­nomic growth which if not man­aged will con­strict the econ­omy. The sooner the Min­istry of Fi­nance dis­man­tles the ar­rears the bet­ter it will be for eco­nomic growth. Un­til this is achieved risks to eco­nomic growth will still be ex­is­tent.

Ariel view of Kansan­shi mine in Africa’s sec­ond largest cop­per pro­ducer, Zam­bia whose do­mes­tic debt po­si­tion has more than dou­bled over the last 2 years to USD5.1bil­lion Kwacha equiv­a­lent yet not backed by strong eco­nomic growth.

See be­low do­mes­tic debt graph show­ing the rise in bor­row­ing ap­petite by gov­ern­ment from March 2016 to March 2018 as per MPC pre­sen­ta­tion by the Gov­er­nor.

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