Eurobonds Have Pushed Zambia To Breaking Point


Respected Former Bank of Zambia Governor Caleb Fundanga has raised serious concerns over the country’s worsening debt situation.

In his latest paper titled, “Fit for Purpose? An Analysis of Zambia’s Medium-Term Debt Management Strategy, Dr Fundanga observed the three Eurobonds have completely reversed the country’s almost debt free status attained before 2011.

Dr Fundanga noted that Zambia was one of the countries that benefitted from the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief (MDR) Initiatives noting that these initiatives left the country almost debt free.

He however observed that in recent years, the Zambian debt situation has completely reversed.

Dr Fundanga stated that with a debt stock of 18.9 percent of GDP in 2011 Zambia’s debt stock grew to 56.3 percent by 2015.

“This very rapid increase has occurred since 2012 due to the issuance of Eurobonds; US$750 million in 2012, US$1 billion in 2014 and US1.25 billion in 2015. The rapid increase in debt has translated into huge annual debt service payments; from US$34.14 million in 2011 to US$484 million in 2016,” he wrote.

Dr Fundanga observed that the domestic debt situation has been equally bad.

“This debt, mainly contracted through issuance of Treasury Bills and Bonds, has grown from ZMK11 billion in 2011 to ZMK33 billion in 2015 with resultant composite yield rates for Bonds rising from 15 percent in 2011 to 25 percent in 2015 whilst Treasury Bills rose from 11 per cent in 2011 to 24 per cent in 2015. When domestic arrears are added to this, domestic debt stock in 2016 stood at ZMK 51.8 billion – with arrears representing 36 per cent of domestic debt.”

The Former Central Bank Chief stated that the PF government has been using debt to drive growth.

He however noted that redemption of any debt works much better if the proceeds of the borrowed money are invested in productive sectors of the economy.

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