Zambia is making headlines in the capital markets for the third week in row, this time causing jitteriness in the dollar bond market but a ‘Bally will fix it’ tweet calmed the capital market’s eventually. This follows revelations about a deeper hole in the national treasury as shared by the newly elected president Hakainde Hichilema in a tweet. Despite the divulgences on debt, it is still vague as to the depth of the deficit as the official exact position is yet to be communicated.
Zambia’s dollar bonds maturing 2024 plummeted the most in 2 months to 79.2 on September 01, after news of a wider deficit in the treasury was priced in while the assurance tweet on the morning of the September 02 from the head of state triggered a valuation correction that saw the eurobond appreciate to 79.8.
DOLLAR BONDS ELASTIC TO DEBT INFORMATION AMIDST RESTRUCTURE PROSPECTS
What Africa’s copper producer experienced is elasticity of the dollar bond market to fiscal posture information. With the red metal producer in the middle of a debt restructure, transparency remains key at earning trust of creditors. The August leadership change that saw the ascension of Hakainde Hichilema to power, saw a strong surge of sentiment rebound that sent the Kwacha on a 17.6% winning streak while local bonds soared to record levels as offshore demand from yield hunters and the dollar bond market appreciated 12.3% in price.
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“Dollar bond markets are highly liquid and sensitive to news in markets that players are interested in. It’s the value of information and offshore players have their hopes in the new leadership and are following closely. The new head of state has been transparent and is signaling commitment to addressing the copper producers hurdles.”
Nikiwa Capital Financial Analyst Munyumba Mutwale
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“As international and local markets pay attention to the governance dynamics of Zambia and statements issued by the President, the tweet by the head of state is a resounding effective communication strategy to assure creditors of Zambia’s willingness and perhaps ability to settle its dues.”
University of Zambia Economics Lecturer Dr. Gabriel Pollen
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President Hichilema has embarked on a 3R approach namely revive, restore and repair to restore fiscal fitness. Hichilema named Dr. Situmbeko Musokotwane a pro Bretton Woods Economist, as MinFin head in his debut cabinet appointment. Zambia is poised to continue engaging with the Washington based lender the International Monetary Fund – IMF for a bailout package in extended credit facility which remains precursor to a successful debt restructure.
More policy changes are anticipated in key sectors such as mining, energy and manufacturing as the new regimes seeks to effect growth sustainably. Hichilema is expected to unveil his cabinet in the coming weeks.
The Kwacha Arbitrageur