A cautionary tale of Zambia’s international sovereign bond issuance report shows that the country may experience difficulties in repaying the face values of Euro-bond at maturity.
The report states that this will be so if the money is either not spent on activities with high economic returns or if there are adverse changes in exchange rate or international market conditions.
The Zambian government has since 2012 issued two ten-year sovereign bonds amounting to US$ 1.75 billion to mainly finance infrastructure projects in transport, energy and health sectors.
The report contends that despite the high interest payments of over US$125 million annually, the bullet structure of the two bonds may have significant repayment risks as the country was expected to pay out the US$1.75 billion within a two-year period between 20th September 2022 and 14th April 2024.
The report, which has been produced by the Zambia Institute for Policy Analysis and Research (ZIPAR), was launched in Lusaka today by Ministry of Finance Permanent Secretary in charge of Budget and Economic Affairs Pamela Kabamba.
Mrs. Kabamba said government was willing to work with various stakeholders to ensure that risks that may arise from the issuance of the two sovereign Euro-bonds were minimised and that the credibility and integrity of Zambia is upheld.
She acknowledged that even though the two Euro-bonds were successfully issued on the international capital market, Zambia was still on the learning curve from concessional and non-concessional borrowing to a more market based financing.
And ZIPAR Executive Director Pamela Kabaso stressed that the bonds were not without risks as they increase the country’s external debts and require strict fiscal management to ensure that the government is able to repay the loans.
Dr. Kabaso noted that the report, which was launched today, looks at how Euro-bond risks can be managed and what Zambia needs to do to ensure it does not default on the loans.
She said defaulting could be highly detrimental to the economy.
The report has recommended that government should consider setting up a joint fund for the two Euro-bonds to insulate against future adverse macroeconomic conditions.
The two bonds were issued in 2012 and 2014 respectively and amounted to 37 per cent of Zambia’s external debt in 2014.