Zambia’s Debt Burden Hinders Access to IMF Coronavirus Funds

LUSAKA (Capital Markets in Africa) — Zambia’s request for emergency coronavirus funding from the International Monetary Fund may be scuppered because of the southern African nation’s growing debt burden.

The Washington-based lender last year cautioned that the nation’s borrowing was on an unsustainable path. And now, even as the fund makes as much as $100 billion available to member countries, the IMF warned it won’t lend money to governments if it’s not sure it will be repaid.

“In cases where the debt is unsustainable, the member must take steps to restore debt sustainability in order to access fund financing,” the IMF said in response to questions about whether Zambia’s levels of borrowing could hinder its access. “This could require the government to strike a balance of fiscal adjustment that protects critical social spending and debt relief.”

The global economic crisis the pandemic has caused is exacerbating existing economic risks in Africa’s second-biggest copper producer. Foreign-exchange reserves were at a record low in January, already below levels to cover external debt servicing this year. Government debt will reach 110% of gross domestic product in 2020, and the economy will shrink by 3.5%, according to the IMF.

Zambia has already started the process to hire financial advisers for a liability-management exercise of its foreign debt, which rose to $11.2 billion by December from $4.8 billion five years earlier. The government is shortlisting bidders after it issued a tender in March.

Talks with the IMF over an emergency loan are ongoing, Chileshe Kandeta, a spokesman for the finance ministry, said by text message in response to questions about the emergency virus funds.

Strained Relations
The nation’s Eurobonds have plunged this year on concerns about the ability to repay the debt, with yields on securities due in 2024 more than doubling this year to 41%.

Zambia could qualify for as much as $1.3 billion in relief to deal with the economic fallout of the coronavirus outbreak that has infected 441 people and closed borders with neighbors.
Relations between the government and the IMF have been strained in the past, with the lender yet to replace its resident representative after Zambia asked the last one to leave the country nearly two years ago.

Starting debt restructuring negotiations may be enough to convince the IMF to allow the country to access emergency funds.

Mozambique was able to access emergency IMF funding after suffering two powerful tropical cyclone strikes last year, despite it being in default and with a higher debt-to-GDP ratio than Zambia.

That Mozambique was in advanced restructuring talks with Eurobond holders, and the promise of future massive natural gas revenues was enough for the multilateral lender to approve assistance.

“If a country’s debt is unsustainable, the fund can only lend if it has adequate assurances that the member is on track to restore sustainability,” the IMF said. “If such steps involve a debt restructuring operation, we take into account its prospects for success in restoring sustainability.”

Zambia had already requested an economic package from the fund in December, before the virus relief request. The response prompted Finance Minister Bwalya Ng’andu to complain about being told to first deal with the debt trajectory.

“When you say that we can only have a program after you have exhibited debt sustainability, it’s like you are only given an umbrella after the rains,” he told reporters in February.

Source: Bloomberg Business News