Zambia Eurobond Investors See Hichilema Secure IMF Deal by April
(Bloomberg) -- The landslide victory for Zambian President-elect Hakainde Hichilema may help him make good on his promise to secure a much-needed deal with the International Monetary Fund to reduce debt and boost economic growth.
Zambia’s Eurobonds and currency rallied on Monday after Hichilema beat incumbent Edgar Lungu by almost 1 million votes with nearly 60% support. The massive margin will make it easier to change policy, said Ray Jian, an emerging-market portfolio manager at Amundi Asset Management, which has an overweight position in Zambian debt. The money manager added Zambia’s 8.5% bond due in 2024 as of June 30, according data compiled by Bloomberg.
Hichilema, 59, who says he can achieve an economic growth rate of more than 10% within five years, has pledged to accelerate talks with the IMF to secure funding needed to reduce the nation’s “unsustainable debt level.” Investors including Amundi and M&G Investments see the new leader’s proposed policies enabling the deal.
Here’s what investors and analysts think of Hichilema’s plan:
Gregory Smith, emerging markets strategist at M&G Investments in London:
- “Post-inauguration an IMF program is on the cards for Zambia. Once an economic plan is in place the IMF negotiations can finally step up a gear. An IMF program is feasible ahead of the April 2022 meetings.”
- “However, the big challenge of debt restructuring also remains, given the size of the burden and the many different creditors. This task will not be easy, but the new government should be able to achieve this by the end of 2022.”
- “Zambia has lacked adequate strategy for its investment and economic growth over the past decade. The roots of its debt crisis are as an investment crisis, where projects were insufficiently vetted and poorly prioritized. If public investment were better managed, and the new leadership could stamp out corruption, then the decade to come would be so much better.”
Jian, London-based portfolio manager at Amundi:
- “That would be our base case, the new Zambian government to secure an IMF deal by Spring next year at the latest.”
- The new government’s “strong mandate for change, make it easy to make policy shift; Hichilema’s economy platform is based on private sector-led liberal market reform, which bodes well for the IMF program; Lungu had a lot of on and off engagement with the IMF, but none materialized, Hichilema’s government does not have this trust deficit with the Fund.”
- “We do believe the cure of the bond default is one of Hichilema’s priorities, as a more market-based Zambia economy needs the bond market to partially finance its reform and growth program.”
- “We believe key bilateral lenders such as China are also likely to play a constructive role as it is in their interest to see Zambia reform and achieve sustainable growth in the future.”
Aleix Montana, Africa analyst at risk intelligence company Verisk Maplecroft:
- “Hichilema’s first priority as president will be to implement economic reforms and to work towards an agreement with the IMF for financial assistance, which has become more likely following his victory.”
- “An IMF bailout would facilitate the restructuring of Zambia’s debt and increase the likelihood of it being accepted in other debt assistance programs. Zambia’s commitment to reforming its public finances will be judged on the outcome of the negotiations with the IMF.”
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