Zambia Has No Choice But IMF Aid, Opposition Leader Says
Zambia Has No Choice But an IMF Bailout, Opposition Leader Says
Zambia’s only option is to seek a bailout from the International Monetary Fund as years of excessive borrowing coupled with the impact of the coronavirus pandemic have left it struggling to pay its debts, the main opposition leader said.
The southern African nation’s Eurobonds have been among the world’s worst performing this year and its currency has depreciated by 23% against the dollar as the global outbreak of the virus halts supply chains, forcing down the price of copper that accounts for most of Zambia’s exports. The economy will shrink by 3.5% this year, according to the fund.
“There is no choice here, the government has to come to the table,” United Party for National Development President Hakainde Hichilema said in an interview Tuesday. “There isn’t a way out other than being part of the multilateral community.”
Zambia’s debt has climbed over the past five years as it boosted infrastructure spending, and credit-ratings companies including Fitch Ratings have warned it’s now at a high risk of default. The finance ministry last month called for proposals from advisers for what it calls a liability-management exercise that seeks to reorganize external borrowings, which totaled $11.2 billion at the end of 2019.
Debt could exceed 100% of gross domestic product this year without extensive restructuring, including debt relief, according to Paarl, South Africa-based NKC African Economics. While Zambian Finance Minister Bwalya Ng’andu has said the government started the process to apply for emergency IMF funding, efforts to get balance of payment support from the Washington-based lender for the past five years have failed.
Not Alone
The unsustainable nature of Zambia’s current debt profile may complicate its appeal for help. The IMF said last week that for a country to benefit from emergency funding, its debt must be “sustainable or on track to be sustainable.”
The government urgently needs to conclude a deal by the end of the year with the fund because the economy is “on the verge of collapse,” three former Zambian finance ministers wrote in an open letter to President Edgar Lungu this week. “An IMF deal is essential to resolve the debt problem,” they said.
Zambia isn’t the only regional country grappling with mounting debt.
Angola had its credit ratings slashed and the yield on the struggling oil producer’s dollar Eurobonds jumped to more than 30% this month. Nigeria, Ghana, Gabon and Cameroon all have Eurobonds that traded at spreads of more than 1,000 basis points over U.S. Treasuries, the point above which the securities are considered to be distressed debt.
Zambia must avoid defaulting and should rather look at joining a continental effort to restructure loans, Hichilema said. The African Union has already started pushing for debt relief as its members battle to contain the economic fallout of the pandemic.
“We are small to operate outside that, we are too weak,” he said. “We have to be part of the bigger team.”
The veteran opposition leader, who plans to run against Lungu again next year, has little faith in the state’s ability to win over creditors.
The government on Tuesday threatened to revoke mining licenses owned by Glencore Plc after the company idled the operations due to the drop in copper prices. Earlier in the month it stopped a private television station critical of the government from broadcasting.
“We are heading for a crisis if those in office continue to behave like this,” Hichilema said.
©2020 Bloomberg L.P.