Zambia Budget Deficit Suggests Rocky Road to Restructuring

(Bloomberg) -- Zambia is planning another budget deficit blowout next year, making a funding deal from the International Monetary Fund ahead of August general elections unlikely, and complicating talks with Eurobond holders over a restructuring deal.

The fiscal shortfall will reach 9.3% of gross domestic product next year, Finance Minister Bwalya Ng’andu said in his budget speech in Lusaka, the capital. While that’s below the 11.7% revised forecast for 2020, it’s a large deficit that the government plans on funding partly through more external borrowing, even as it seeks to restructure its existing debt. The nation will hold general elections in August, which may be closely contested.

Ng’andu didn’t mention the IMF, which the government had approached for emergency lending earlier this year. Details on the southern African nation’s debt restructuring plans were also scant, after Zambia this week asked bondholders for a six-month interest payment holiday.

The government has asked all external commercial creditors for debt-service suspensions, Ng’andu said. The government has scheduled a presentation to creditors on Sept. 29. Bondholders want Zambia to reach a deal with the IMF.

Key Budget Points

• Zambia will spend 119.6 billion kwacha ($5.8 billion) in 2021, vs 106 billion kwacha budget for this year
• External debt rose to $11.97 billion by end-June
• Zambia targets economic growth of at least 1.8% in 2021 from an estimated GDP contraction of 4.2% this year
• $1.1 billion pipeline loans have been canceled and $280 million saved from re-scoping projects
• 30.3% of 2021 budget to be financed from foreign loans and grants
• Zambia budgeted 27.75 billion kwacha for 2021 external debt servicing vs 21 billion kwacha budgeted for this year

©2020 Bloomberg L.P.