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Zambia establishes fund on Eurobond repayment

Xinhua, June 18, 2015 Adjust font size:

The Zambian government said on Wednesday that it has set up a sinking fund for repaying of Eurobond funds it borrowed following concerns from stakeholders that the country risks defaulting on its payment unless measures to ensure a smooth repayment system are put in place.

Minister of Finance Alexander Chikwanda, in a ministerial statement reviewing the country's economic performance in the last five months, said the establishment of the fund will ensure a smooth repayment process and that the ministry has also put in place regulations on the management of the fund.

"I have further set out the general regulations for the management and operation of the fund to address issues of transparency and accountability in its management and to ensure that the resources in the fund are used for the intended purpose of paying back the Eurobonds," he said.

Zambia borrowed 750 million U.S. dollars in 2012 and 1 billion dollars in 2014 from the international market to finance infrastructure development projects. The two loans are supposed to be paid in 2022 and 2024.

Last week, a local think-tank said the country risked defaulting on its payment of the Eurobonds unless the government puts in place adequate mitigation measures.

The Zambia Institute for Policy Analysis and Research (ZIPAR) which has produced a report entitled "A cautionary tale of Zambia' s international sovereign bond issuances" advised the government to consider setting up a sinking fund to insulate adverse macroeconomic conditions that may have a negative bearing on its repayment of the funds.

According to the report, the fluctuation of the local currency against other international currencies, declining copper prices and dwindling import reserves will have a negative bearing on Zambia's resolve to repay the funds. Endi