Volatile copper prices to derail Zambia’s Eurobond payment

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Continued fluctuations of copper prices on the international market may derail Zambia’s efforts to repay two Eurobond bonds the southern African nation acquired, the Zambia Daily Mail reported on Wednesday.

The Zambia Institute for Policy Analysis and Research (ZIPAR) said the volatile copper prices on the London Metal Exchange (LME) makes Zambia’s economy vulnerable because the southern African nation depended on the red metal as its main foreign exchange earner.

Copper exports account for about 70 percent of foreign exchange for Africa’s second largest producer of the metal.

“Despite the diversification ‘song’ away from copper, most of our export earnings are still from copper. A collapse of copper prices will have adverse impact on our ability to repay loans,” Pamela Kabaso, the think-tank’s executive director was quoted as saying by the paper.

Zambia successfully issued two Eurobonds amounting to 750 million U.S. dollars in 2012 and paid one billion dollars in 2014 which are due to be paid back in 2022 and 2024 respectively.

She however said the country should put in place a sound, progressive and comprehensive debt management structure to ensure the country’s sovereign-debt issue does not turn into a financial disaster.

The deterioration of other macro-economic fundamentals may lead to the credit rating agencies downgrading the country’s rating, thereby increasing the cost of borrowing, she added.

“We need not only borrow to invest the proceeds in the right type of high return projects, but we also need to ensure that we do not have to borrow further just to serve the debt,” she said.

Shanghai Daily.

 

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