Find us on Google+

Saturday, 15 August 2015

Austerity or Bust?

A recent article by the Government think tank ZIPAR on Zambia's rising Eurobond debts carries the following observation :
With the [current] economic malaise, it is therefore not surprising that the [recent] third Eurobond, at an annual interest rate of 9.375%, is more expensive than the 2012 and 2014 Eurobonds whose interest rates were 5.375% and 8.5%, respectively. This means Zambia will pay US$117.2 million annually in interest until 2025 on this new Eurobond alone. Between now and 2022, interest payments for the three Eurobonds will increase from US$125 million to over US$240 million annually (Source : ZIPAR)
We would suggest that the situation is actually much worse than painted by ZIPAR. Government does not just need to pay back the interest, it also needs to pay back the principal (the actual money owed), when the three bonds mature on different dates.

Given GRZ has set up a "sinking fund", it means that each year it must now set aside money to pay back the principals on the bonds. We think that the planned annual savings into the sinking fund means that government has to save roughly around $350m annually. This means next year GRZ has to set aside $600m to go towards repaying Eurobond debts (interest plus principals). That is just on Eurobonds. We have not even factored in other external debts.

This is the reason we said recently that GRZ simply does not have fiscal space to save properly into Chikwanda's sinking fund. The risk of future default is therefore a real one unless credible steps are taken to bring spending and borrowing under control.

Chola Mukanga
Copyright © Zambian Economist 2015

 You can also comment and read other contributions on this topic via Facebook.

1 comment:

  1. I see HIPC II in the future. And every time, they take more of the country - exactly like Greece, or Ireland in 1847. There is nothing new here, ever. Same bank, same family, doing the same thing across the ages. And by the way, the British taxpayer is still paying off these bond loans, including the Slavery Abolition Act (1833 or 1835), which was a big 8 million pound payout by the monied and aristocratic classes to themselves.


All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.