First Capital Bank sees a bullish recovery trajectory for Zambia in 2022 and onwards following the Washington based lender, International Monetary Fund (IMF) endorsement of the Southern African nations fiscal strides. Speaking in a Money Watch show on Spring24TV, the banks Head Trader Dean Nathaniel Onyambu stated that Zambia’s engagement with the IMF and the strides attained has clawed back sentiment in the copper producer manifesting in a rally in bond yields and a boost in foreign direct investment to circa $3bn (2021) from $869 million (2020).
“Three key themes that have dominated the global environment are namely inflation, the COVID19 pandemic and potential contagion from the stress in the property market from Evergrande stress. For Zambia it has been inflation and idiosyncratic issues for which an IMF Staff level agreement was reached. An IMF deal is precursor for successful debt restructure which will rubberstamp and endorse confidence in the country from FDI to attractiveness of government securities which has sent bond yields to 26% from 34.5%,” First Capital Bank Head Trader Dean Onyambu said.
However Onyambu did cite potential risks around full debt restructure which could be triggered by hurdles around getting haircuts of non-Eurobond debt inferring from other restructure efforts concerning debt from the east. Other risks cited are inflationary pressure from a 25% fuel price hike in addition to other global inflationary pressure from logistic prices jumps.
Zambia recently lifted its lid on petroleum subsidies which saw fuel pump prices widen in the month of December 2021. However the copper producer still left the valued added tax component leaving a part of the subsidy. On the horizon is an electricity tariff hike which First Capital Bank sees challenging to implement in the mining sector that consume over 54% of the power grid and have longer dated contracts which could lead to a bigger burden brunt borne by consumer excluding the mining firms.
With the 1Q22 increase in borrowing appetite by the central bank by 53% according to a prospectus on the Bank of Zambia website, Onyambu cited potential interest rate risk autopsies on the back of increased fiscal funding needs especially the 2022 budget. This he cites will make it harder to move interest rates lower. Zambia’s MinFin announced an ambitious K173 billion (circa $10 billion) private sector led fiscal budget to expand the economy 3.5% in 2022.
The Kwacha Arbitrageur
