Insomnia No More for Zambian Finance Chief Over IMF Talks

(Bloomberg) -- Zambian Finance Minister Margaret Mwanakatwe is no longer having sleepless nights over an International Monetary Fund loan the southern African nation has been trying unsuccessfully to secure for the past two years.

“I’ve talked about four things that keep me awake. Four months ago I was saying IMF. I don’t say that anymore,” she told business leaders Tuesday in the capital, Lusaka, after delivering the 2019 budget last week. “Because IMF, I believe, will come on board at some point -- tomorrow or the day after tomorrow.” Her other concerns are debt sustainability, extending the nation’s revenue base, domestic arrears and clearing bad perceptions, she said.

Africa’s second-biggest copper producer is at high risk of debt distress, according to the Washington-based lender, and last month saw yields on its dollar bonds soar as high as 17 percent. Its currency, the kwacha, has depreciated by more than 20 percent against the dollar this year. Only Turkey, Argentina and Angola’s currencies have fared worse over the period, according to data compiled by Bloomberg.

The remedy? While an IMF deal would help boost confidence in the economy among investors, positivity among local businesses is just as crucial.

“Things like that are important, and that’s why I believe IMF is important. But more importantly is that we sort out our economy. And we are doing it. You guys are doing it,” Mwanakatwe said. “I just need you to do more. And believe in yourselves and become more positive. Make that glass half full. And you’ll be surprised at what happens. You’ll be surprised at that bond yield. It will come down.”

Yields on Zambia’s $1 billion in Eurobonds fell by 53 basis points Tuesday to 15.92 percent by 3:38 p.m. in London, the biggest drop since Nov. 2016.

Debt Increase

Zambia’s Eurobonds, which trade more cheaply than defaulting Mozambique’s, have suffered as the government rapidly increased its external debt to $9.4 billion at the end of June -- almost double the level in 2014. Donors including the U.K. last month announcing the halt of aid amid corruption investigations also hit the bonds and the kwacha.

Mwanakatwe’s maiden budget included gross external financing of 24.6 billion kwacha ($2 billion) for next year. This probably translates to $2.5 billion, as the budget was drawn up before a sharp drop in the currency, Standard Bank Group Ltd. said in a note Monday. Raising that amount looks “challenging,” the lender said.

The government will need to spend about $1.5 billion on external debt servicing next year, and because its foreign-exchange reserves are close to an eight-year low of about $1.8 billion, it will need new borrowing to pay, Standard Bank said.

Mwanakatwe will travel to the IMF’s annual meetings in Bali this month, she said, without detailing if she would seek to revive talks over a $1.3 billion program that the fund halted in August last year. The lender will then visit Zambia at the end of this month through the first week of November, she said.

What does Mwanakatwe want from the visit?

“I just need a positive statement from them,” she said. “That’s all I need right now, a positive statement. I want IMF to be positive, but more importantly, you to be more positive than IMF.”

©2018 Bloomberg L.P.