By Jeff Kapembwa
Lusaka – Zambia has dispelled reports that it is in debt crisis despite warning that its uncontrolled spending pattern coupled with increased borrowing, chiefly from China, could place the country under debt distress and threaten its sovereignty.
Zambia’s debt portfolio rose to US$9.7 billion as at the end of June this year. This, coupled with interest accrued inclusive of euro bond loans, has risen to US$14.6 billion, a ministry of finance spokesperson, Chileshe Kandeta said in a statement last week.
In its latest report, this week, Africa Confidential warned that Zambia risks losing its sovereignty to China, as that country would seize national assets should government default on loan repayment.
The report titled: ‘Bonds, bills and ever bigger debts’ noted that the government has continued to spend lavishly despite Zambia being in debt distress while fraud in government institutions was of concern to donors.
“Financial management across the ministries is under scrutiny. Britain’s Department for International Development is investigating fraud in three ministries, which could have serious implications for future funding.”
The report notes that Zambia’s exposure to Chinese debt, estimated at about 80% of the country’s indebtedness, especially project credit, is a cause for concern.
The Chinese are already running the Zambian national broadcaster, the Zambia National Broadcasting Corporation (ZNBC), in which they have a 60% stake, while talks are in progress for the takeover of Zambia;s national power utility, Zesco, by a Chinese company as part of the debt swap.
“A major worry of the IMF (International Monetary Fund) and US is that China’s Belt Road Initiative (BRI) strategy is first to encourage indebtedness, and then to take over strategic national assets when debtors default on repayments.
“The long-term outcome could be effective Chinese ownership of the commanding heights of the economy and potentially the biggest loss of national sovereignty since independence,” the report added.
The real Chinese debt figures, which, according to the ministry’s records stand at around US$15 billion, have been described by Britain and the US as a crisis.
“Zambia is a good example of what the International Monetary Fund and the United States Senate are calling a crisis of accelerating developing country indebtedness to China.”
On 3 August, a bipartisan letter from prominent US Senators to US Treasury Secretary Steve Mnuchin urged the US not to allow the IMF to bail out countries that were in financial difficulties due to over-exposure to Chinese debt, especially for ‘overpriced’ infrastructure projects.
Although Zambian Finance Minister Margaret Mwanakatwe announced that all Chinese projects below 80% completion would be halted, President Edgar Lungu had told Chinese nationals that all projects would go ahead as planned.
According to the Africa Confidential report, Zambia is expected to be contributing 15% of its own money to the Chinese-financed projects. Meeting this commitment is testing government finances to the limit and taking precedence over social expenditure.
While Mwanakatwe had pledged to halt all Chinese-backed projects that were less than 80% complete, on 11 July President Lungu publicly told Chinese officials in Lusaka that there would be “no disruption in the ongoing projects financed by China”.
“Since President Edgar Lungu ascended to power, Zambia has signed off on at least US$8 billion in Chinese project finance. Over US$5 billion of this has not been added to the total because Zambia insists the money has not been disbursed, and more large loans are in the pipeline.”
Concerning the recent departure of IMF representative, Alfredo Baldini, from Zambia, the publication reported that the latter was asked to leave on accusations that he was spreading negative sentiment.
“The government has all but expelled an IMF official, as the debt continues to spiral and the role of Chinese projects in it raises more concern. Having allocated US$500 million to external debt service this year, the government’s liquidity crisis drags on as relations with donors and international financial institutions plummet. The rift is a blow to any chance – practically non-existent, though it already was – of a deal,”
Africa Confidential noted that government had continued spending lavishly despite the country being in debt distress and unless urgent remedial austerity measures are put in place, the country’s debt portfolio would spiral beyond management.
“In mid-July Lusaka announced a supplementary budget of K7.2 billion (US$721 million.). Half of this is for debt service, which leaves only just enough only for public sector salaries, which it is struggling to pay. It missed most August salary payments, causing outcry among civil servants last week.
The raising of capital in the domestic market is not going well, it noted. The auctions of Treasury Bills have been poorly subscribed on average, although it has been using massive inducements to attract the banks.
According to data, government had by the end of May spent US$489 million on external debt service and on 19 July, it announced a further US$161.3 million was paid in June. It will need a further US$360 million over and above the sum originally budgeted to service debt.
However, chief government spokesperson, Dora Siliya has dispelled reports that Zambia is in debt crisis while warning critics against spreading false alarm. She argues that the country’s debt threshold was within manageable levels.
“Our debt to GDP ratio is at 53.1%, which is below the standard 60%. There are countries whose debt to GDP ratio goes beyond 100%. There is no country in the world, which manages without debt,” she said during a Sunday interview on the national broadcaster, ZNBC.
The finance minister was continuously engaged stakeholders like IMF on the debt situation and says the relationship with the fund was normal.
“When we borrow, it is because we want to invest. The fact that we are at 53.1% means that we still have a lot of headroom to borrow.
“There is no debt crisis and the economy continues to move. We are anticipating that at a certain time in future we will have to make payments.”
Finance ministry permanent secretary, Mukali Chikuba, says Zambia has set aside US$10 million as part of the US$20 million it plans on placing under sinking fund this year to help meet Euro bond debt obligations secured since 2012.
Zambia’s US$3 billion Euro bond debt falls due in 2022-2024, hence the government’s preparations to ensure it does not default. A sinking fund is an amount used to deposit and save money to repay a debt or replace a wasting asset in the future.