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Zambia on the brink of sovereign default- reports

Filed under: Business,Latest News |

The Africa Confidential has recently reported that there is a likelihood that Zambia could fail to honour its Eurobonds repayments.

According to Africa Confidential, the country’s major undoing is continued borrowings.

“After stopping payments on several commercial loans this year, Zambia is set to default on its US$3 billion Eurobonds,” predicts the Africa Confidential.

It further notes that now trading at ‘distressed debt’ levels, with yields over 50%, it is very likely that the country may default in the repayments.

Apparently, according to the Chr. Michelsen Institute (CMI), Zambia benefited from the HIPC debt relief in 2005 but has borrowed heavily since 2012.

The Institute notes that now Zambia is in high risk of debt distress.

“China is the single biggest creditor, but Zambia has also borrowed from others, including the development banks and the commercial Eurobond market,” once noted the Institute.

CMI said Zambia has borrowed for important infrastructure in roads, energy, railways and telecom, while other loans have covered budget deficits.

“Some loans for infra¬structure have had significant socio-economic benefits, while others have generated few benefits so far. “Economic decision-making is centralised in the Office of the President without adequate economic considerations,” charged the CMI.

The Institute adds that the Zambian government must take full responsibility for the debt crisis as they have received ample warnings.

CMI pointed out that warnings against the increasing debt burden came from the country’s own economists and opposition, as well as from external advisers, the IMF, World Bank and donors.

CMI also at one time pointed out that there were still options that the country could take for debt sustainability include postponing new loans and new projects.

Another option is that of renegotiating loans from China and others, entering an IMF loan agreement.

However, the Institute maintains that there is need for more prudent financial management.

“The government’s approach so far has been inconsistent and too weak,” noted CMI.


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