The Zambian Government’s continued borrowing has become a source of concern here following the recently-obtained US$ 1 billion second Eurobond.
The Government this week announced that it had successfully issued a second sovereign bond in the international capital market, amounting to US$ 1 billion for which Zambia will be paying interest of 8.625 percent or US$86 million per year for the next 10 years on the Eurobond and the country will then need to pay back the final US$1 billion in 2024.
Zambia is currently paying around US$42 million interest annually on its first Eurobond of US$ 750 million, launched in September 2012. It is due to pay back the full US$750 million in 2022.
Nevers Mumba, opposition leader of the former ruling Movement for Multiparty Democracy (MMD), says the Patriotic Front (PF) government’s debt policy is unacceptably reckless and might plunge the country into serious problems.
The opposition leader charged that the latest US$1 billion bond had pushed the country’s external debt stock to US$ 4.5 billion.
“We know that this government is also heavily borrowing from the domestic market and crowing out the market. On a monthly basis, it is borrowing 250 million kwacha and would have borrowed an additional US$ 3 billion domestically by end of 2014,” Mumba claimed recently.
“What is even more shocking is the rate at which the country’s debt stock is swelling. Within two years of the PF, the country’s debt stock has bulged due to excessive appetite for debt. This government is reckless and just thinking of eating today.”
“They are now saying Zambia’s asset value in terms of national productivity is around US$ 25 billion according to the revised GDP estimates which will are disputing because it is an over statement. The true value of our economy is around US$ 18 billion and US$ 21 billion but what is even more important to consider is that the PF government has now borrowed above half of our equity which is criminal. Any financial manager will tell you that borrowing above half of your equity is criminal,” Mumba told the local media.
The Jesuit Centre for Theological Reflections (JCTR) has also expressed concern on the second Eurobond, saying that government’s continued borrowing is a source of concern.
JCTR Director, Fr. Leonard Chiti, said it is worrying and at the same time scary that government has gone ahead to issue a second sovereign bond before it even pays back the first US$750 million Eurobond.
Chiti observed that Zambians are not against borrowing but that what they are against is irresponsible borrowing, pointing out that the country runs the risk of falling back into the debt trap at the level government is borrowing.
He stated that as much as government has outlined where the money will go, it should also find other means of funding those sectors instead of resorting to borrowing.
Chiti said government should also ascertain whether the country is in a position to acquire more debts and be able to pay back.
Alliance for Better Zambia (ABZ) President, Father Frank Bwalya, fears that the patriotic front government will leave the country with a huge debt by the time they leave power going by their borrowing habit.
He charged that the PF government has continued to borrow heavily with the hope of impressing the Zambian people, following their alleged failure to fulfill the many promises made to the people.
Bwalya warned that the continued reckless borrowing by government will lead the country into a debt trap.
Government described the issuance of the second Eurobond as a resounding success. Acting Finance Minister Edgar Lungu, who is also Defence Minister, explained that the second bond, just like the first, was significantly oversubscribed, an expression and affirmation of the confidence the international investor community has in Zambia.
He said the bond proceeds will be targeted at growth-prompting projects in the various critical sectors of the economy, namely the transport and energy sectors.
“The resources from the international capital market will help to accelerate the government’s development agenda which already has had an impact and is acquiring great momentum. The huge investments in billions of dollars in mining ventures in new frontier areas, and in corporate agriculture, are clear testimonies of the efficacy of our development agenda. They underpin our hopes,” Lungu stated.