ADVERTISEMENT

Zambia Wants to Forgo $5 Billion in Contracted External Debt

Zambia Wants to Forgo $5 Billion in Contracted External Debt

(Bloomberg) --

Zambia will cancel or downsize project loans worth about $5 billion as the nation tries to rein in runaway external debt that’s been increasing its risk of default.

The government has about $7 billion in pipeline external debt -- loans contracted but not yet disbursed -- and plans to slash this to about $2 billion, Finance Minister Bwalya Ng’andu said on Wednesday.

That would add to Zambia’s existing external debt stock of $11.2 billion at the end of 2019, which the International Monetary Fund forecasts would rise to 66% of gross domestic product by the end of this year. External borrowing has soared from $1.7 billion a decade ago as the government embarked on an ambitious program to build roads, airports and increase electricity generation.

“The external debt portfolio was extensively reviewed and relevant stakeholders engaged to identify and assess already contracted project loans,” Ng’andu said in a statement. “These were then subjected to a defined criterion in order to determine their suitability for cancellation or re-scoping.”

Investors are worried whether the government of Africa’s second-largest copper producer will be able to make the first payment for a total $3 billion in Eurobonds that falls due in 2022. Yields on its dollar debt have topped 20% in recent months.

Read more:

While debt holders might be comforted that Zambia will scrap $5 billion in pipeline debt, the $7 billion of yet-to-be-disbursed loans come as a surprise as they weren’t disclosed in external debt numbers.

The country’s economic expansion could exceed 3% this year, Ng’andu said. That compares to a 1.7% estimate by the International Monetary Fund. Inflation is expected to remain high in the first quarter after quickening to 12.5% from 11.7% in December, he said.

To contact the reporters on this story: Taonga Clifford Mitimingi in Lusaka at tmitimingi@bloomberg.net;Matthew Hill in Maputo at mhill58@bloomberg.net

To contact the editors responsible for this story: Gordon Bell at gbell16@bloomberg.net, Helen Nyambura, Hilton Shone

©2020 Bloomberg L.P.