- Assures eurobond holders and bilateral debt providers that their money is safe in Zambia.
- Re-iterated need for accountability in public finance management.
- Admittance of debt burden and measures to reign in the obligation to restore the nation to fiscal fitness.
- The drive towards ensuring increased operational efficiency through listing of SOEs.
Head of State in Africa’s second largest copper producer Zambia, His Excellency Mr. Edgar Lungu opened the World Bank IDA -18 meeting in Livingstone on 13 Nov. This meeting comes barely a few days after an article 4 mission team visit by the Washington based lender IMF team that held talks with stakeholders and met with the MinFin on Zambia’s debt. While this was happening the long awaited Q3: 2018 fiscal brief was released with updated performance figures of debt, reserves and revenue collections.
Zambia will not default on obligations
In his inaugural speech, Zambia’s Head of Government assures eurobond holders and bilateral debt providers that their money is safe in Zambia. This statement comes at a time when investor sentiment has waned and investors have looked forward to assurance from the Head of State that Zambia will not default on its dollar denominated debt when it falls due in 2022, 2024 and 2027. The copper producer has $3bn worth of dollar denominated debt whose spreads have widened significantly to over 1,300bps pushing yields to over 16.5% surpassing those of Mozambique with a history of default. This statement is one that is long overdue and was making investors weary of the wait. Hopefully this news should price into the markets to ease pressure on credit default spreads on dollar bonds.
International investors have longed for an assurance tone from the top on safety of their investment in Zambian dollar assets. This was established in various meetings Economic think tanks have had with fund managers and actual eurobond holders in Lusaka.
The Presidents admittance of Zambia’s elevated debt position, aligns with the Minister of Finance’s Q3: 2018 fiscal performance brief.
Zambia not in debt distress
“Yes, Zambia has debt challenges in respect of spending on debt servicing as a ratio to spending on social services. But hear it from me, we are not in distress. Zambia has never defaulted on its dues and we remain committed not to fall into that situation,” here we see the tone from the top that is expected to cascade to his Minister of Finance to ensure debt service is met timely.
Debt service has become a topical issues from a resource allocation perspective as it reduces allocation to key productive sectors of the economy. Debt service according to the latest fiscal performance totaled $524mn for the first three quarters of 2018 and is expected rise in next fiscal year. This has increased the resources allocated towards debt service to 24% of the fiscal budget as per 2019 budget announcement.
“Zambia remains steadfast in ensuring that our debt remains sustainable and does not compromise our sovereignty,” here the President demonstrates his commitment towards averting default at all costs.
“It is in this regard that the country is implementing bold measures to ensure that we achieve debt and fiscal sustainability,” he said. Here we see a commitment towards austerity and the medium expenditure framework (MTEF) which is supposed to align the nation to fiscal fitness restoration.
Operational efficiency in SOEs through listing
The President ends his speech with a strong intent to improve operational efficiency of sub optimal performing state owned entities. This he commits to achieving through stock exchange listing in line with World Bank and International Monetary Fund – IMFs recommendations. At this juncture the Head of State allays fears of the outright sale of the states forestry company ZAFFICO, power utility ZESCO and national broadcaster – ZNBC. (There has been information asymmetry about these 3 SOE’s that has caused tension in the Southern African nation).
President Lungu urges the audience at the IDA conference to dispell all propaganda about Zambia yet advises them to seek credible government information. This is a reflection of realization that information asymmetry is costing the country confidence and the need to narrow the information gap would only be achieved through frequent reporting ranging from fiscal performance (to keep investors informed) to information on developments internally to allay citizens fears (i.e listing of SOE’s to calm existing employees on job security etc).
Public Finance Management
“Misuse or misappropriation of funds, corruption, misprocurement and poor project implementation must be dealt with decisively,” His Excellency said. The President expressly makes reference to the strengthened PFM Act with emphasis on recent crackdowns on perpetrators. However the Head of State does acknowledge that they are efforts to complete the planning and budgeting bills which are overdue. This should pressure on the MinFin Minister Honorable Mwanakatwe to narrow the gap in ensuring these are closed as they have for a while been outstanding. Another interesting pronouncement is the repealing of the procurement law to enable inclusion of cost control through bench-marking of pricing and usage of expert estimates to guide the procurement process.
This was the first time ever the International Development Association – IDA was holding its mid term review meeting in Southern Africa. Zambia was privileged to be a venue for the IDA-18 with global delegates gathering in the tourist capital, Livingstone. The hosting of the IDA-18 review in Zambia showed a vote of confidence the World Bank has in the copper producer especially that the IDA-18 allocation had even increased by 70%.
