OP-ED: Avoiding debt default and turning Zambia around — at the same time By Greg Mills BrenthurstF
Zambia’s external debt had been reduced to under $1-billion by 2006 as a result of various global forgiveness schemes. Then, akin to a recovering alcoholic, the Zambian state was supposed to stop drinking, get a paying job, and become a productive member of society.
And the spending hangover is about to strike. Some $750m of Eurobond debt matures in 2022, $1-billion in 2024, and $1.25-billion between 2025 and 2027. The grace repayment period on some of the larger Chinese loans also ends in 2020.Rather than being put exclusively to productive purposes such as investing in infrastructure, much of this new debt has been spent on salaries and corruption. The public service comprises 237,000 of the 625,000 people who are formally employed in the economy.
Increased debt risks saw Zambia downgraded by all three credit rating agencies in 2018, while the price paid by investors for Zambia’s Eurobonds plummeted to 75c in the dollar. New loans or a bond issue is unlikely without agreement on an IMF programme. Moreover, Zambia’s low foreign exchange reserves of just $1.6-billion increase its vulnerability to external shocks and raise the premium to borrowing.
Yet, there is another way out of this mess. If Lusaka was to grab this offer, it is not the only solution required, but one that offers a firm foundation for a reformist shift.From the 1980s the state-owned and run Zambian Consolidated Copper Mines was bleeding money at an alarming rate, as much as $1-million a day, draining the fiscus dry and then some. Privatisation stopped the bleed.
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