Should the Argument of Hidden Debt still rage on?
Economy, Opinion
Hon. Mwanakatwe Photo from

It is no secret that the IMF has been dating Zambia for several months now as two of Zambia’s Finance Ministers have attempted to secure a deal to plug in the fiscal hole of USD 1.3 billion. To take you back, it was the eruption of reports in Mozambique that hidden debt existed caused an unfortunate scare for investors in Zambian paper assets.

Normally, a discovery in another sovereign country should not have impacted assertions of the country profile of another especially for Zambia. However, whether it was geopolitical proximity or otherwise, Main Stream Media (MSM) began issuing reports that one would easily be convinced that Zambia was about to “pull a Mozambique”.

However, unlike our neighbours, their situation was uniquely different from ours. Sadly very little was published by MSM leaving lenders “shaking in their boots” and causing havoc on Zambia’s 3 issued Eurobonds. This therefore required a stern call to action through information dissemination.

To start with, our current Finance Minister laid it bare on the table. In April 2018, Margaret Mwanakatwe, announced that our total external debt stood at US$8.7 billion while domestic debt stood at K48.4 billion and domestic arrears were at K12.7 billion as at December 2017. In addition, she further announced and committed to a debt analysis exercise that her ministry would conduct to ascertain all of Governments’ existing obligations through what she termed as “Debt Sustainability Analysis”. Although there were unproven allegations that the IMF had insisted on this, the Finance Minister was quick to dismiss assertions that this was a requirement rather it was her Ministry’s proactive approach in managing the debt information disclosure situation. Furthermore, after her economists and accountants had grinned the mill, the minister stated in June 2018 that “The debt sustainability analysis has confirmed that we need to undertake measures to bring debt risk to moderate from the current high risk”.  In addition, she disclosed that as at March 2017, the country’s debt pile stood at $9.3 billion (roughly a third of gross domestic product) up from $8.7 billion at the end of 2017.

Many local economic pundits applauded her for her bold and brave stance because they understood what the signal was that was coming from the Finance and Economy Impresario. You see for nations that consider themselves far from being “banana republics”, such statements are ubiquitous in their jurisdictions. However gloomy the message is, investors in that economy find themselves in the know and are able to make decisive decisions accordingly.

This is why we were not surprised when the Bank of Zambia Governor, Dr Denny Kalyalya, made the announcement at his last MPC announcement that confidence in Zambian long term paper was still very strong albeit with a rather volatile position for foreign paper. Conversely however, he did admit that foreign exchange reserves were low. However, Non-resident investors’ holdings rose by 2.4% to K8.7 bln dominated by Government bonds according to his statement. With attractive yield rates, foreign investors (i.e. those hedge funds) continue to have confidence in long term paper.

The Finance Minister is on record advising that there will be consolidation of some of the loans that the country has with China. At the time of drafting this article, Mwanakatwe led a team of Ministers to hold strategic consultations with Chinese authorities, financial institutions and companies doing business in Zambia to discuss the debt restructuring programme. The outcome of this is yet to be published.

In a recent country risk report out of BMI Research, they believe ”that restructuring bilateral loans with state-owned Chinese companies which while aimed at relieving some of the immediate pressure also undermines the more challenging fiscal and debt position the country currently finds itself in”.

The unfortunate part on Government’s side is that the public relations machinery has not been in full gear to echo the simple fact that information on all acquired debt is already in the public domain. Furthermore, with the recent announcement from the Ministry of Finance regarding the current position reveals the ministry as now putting itself on the mantle and promising to deliver the Debt Sustainability Analysis report.

What will be interesting though is how investors will view this information and the level of transparency that has been exhibited. No doubt the Zambian scenario is far from the Mozambique one and analogies that have been made are far from accurate. This is the inherent problem this region (Sub-Saharan SSA) suffers from when it comes to data dissemination. This is why it was prudent of the Minister (following her appointment in March 2018) to reiterate Government’s resolve to her staff on engaging the IMF on the need to resume programme discussions. She also stated that in “order to prepare for fresh and better engagement with the IMF, there was need for her Ministry to clean up all debt related data and ensure that the data sets are accurate and complete in order to facilitate better engagement when talks resume. In short, the Minister notes that they need to clean up house in order to bring back confidence”.

CEOs of various companies within Zambia and those that seek to invest in Zambia closely monitor such statements. For those already trading in Zambia, based on their Chairperson’s statements in their 2017 annual reports that Financial Insight has reviewed and published on this website, the bulk have been bullish over the prospects of investing in Zambia. No wonder, BMI have noted in their SWOT analysis of Zambia in their country risk report for Q3 that opportunities in key non-mining sectors (such as tourism) have continued to contribute to high growth. Furthermore, they believe that the prevalence of copper has fuelled foreign investment and bolstered the current account in recent years. It is this side of the story that continues to reign in the minds of astute investors who have digested the information about the Zambian macro and have made their decisions on their different investment cases.

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