Is Zambia headed for another debt crisis?

A statement issued by a former governor of Zambia's central bank that the country's public debt has reached crisis levels has raised fears as to whether the country risked plunging into another unsustainable debt situation.

Caleb Fundanga, who served as Bank of Zambia (BoZ) governor from 2002 to 2011, recently warned that Zambia's public debt has reached crisis levels.

The former governor's fears emanated from a recent debt sustainability analysis conducted by the World Bank and the International Monetary Fund (IMF) that indicated that Zambia has a high risk of external debt distress, emanating from the Eurobonds maturing between 2022 and 2027.

This is in contrast to another analysis conducted by the two institutions in 2015 that had showed that the country's external debt distress was considered to be moderate.

The former central bank governor, in remarks delivered at a public discussion organized by the Economics Association of Zambia (EAZ), an association representing economists, added that the country will face significant fiscal pressure between 2022 and 2027 as the Eurobonds mature.

On the other hand, the ratio of external debt service to revenue is projected to increase and breach the sustainable threshold of 20 percent between 2022 and 2027 from 9 percent on average, he added.

Zambia's debt has increased considerably following the issuance of three Eurobonds. The country issued three Eurobonds of 750 million dollars in 2012, the second one of 1 billion dollars in 2014 and a further 1.25 billion dollars in 2015.

According to government figures, the debt was standing at 9.44 billion dollars as at September 2016, comprising 6.7 billion dollars of external debt and 2.7 billion dollars of domestic debt.

According to analysts, the country's external debt has escalated by 240 percent in the five-year period between 2011 and 2016 from 1.97 billion dollars to 6.7 billion dollars.

However, other independent sources have put the country's debt at about 12 billion dollars, a move that has caused consternation from stakeholders who feel that the country could plunge back into another unsustainable debt.

"The government must undertake fiscal consolidation to avoid rapid accumulation of debt as current debt levels are unsustainable," the former central bank governor said.

He has since advised the government to explore cheaper sources of finance and maximize borrowing from concessional and semi-concessional sources while moderating commercial borrowing.

The fear of the country's debt becoming unsustainable was highlighted by Finance Minister Felix Mutati in his 2017 budget presentation to parliament on 11th November, 2016.

In his address, he had stated that the government needed to be responsible to ensure debt sustainability and added that the country was "walking a tight rope".

Muna Hantuba, an economist, also expressed concern over the country debt, saying the public debt was a crisis.

The economist, who was speaking at the same public discussion, urged the government to refrain from borrowing more money and avoid growing the debt crisis.

The Jesuit Center for Theological Reflection (JCTR), a social and economic lobby group, is concerned over the high debt levels especially if the borrowed money was not being used on high-return projects.

According to its statement, increased debt levels usually imply higher taxes on the already heavily taxed citizens and consequently a higher cost of living.

Zambia's debt crisis became increasingly acute in the 1980s as a result of a fall in oil prices in the 1970s and dropping copper prices that forced the government to borrow heavily to finance development.

Zambia's foreign debt, which had reached alarming proportions of about 7.2 billion dollars by the year 2000, was written off when the country attained the Highly Indebted Poor Countries (HIPC) initiative completion point in 2005.

The HIPC program was launched in 1996 by the World Bank and the International Monetary Fund (IMF) to reduce the external debt burden of eligible HIPC countries to sustainable levels in a reasonably short period of time.

The southern African nation was among 18 African nations that qualified for the Multilateral Debt Relief Initiative (MDRI), in which G8 countries agreed to cancel 100 percent of the debt owed.

As a result of that debt cancelation, Zambia's debt was reduced to only 500 million dollars, leaving the country with enough resources to improve its economy. Endit