CTPD raises questions over Turkey Bailout Package, urges caution

The Centre for Trade Policy and Development has urged government to pursue the refinancing of Zambia’s sovereign debt with great caution.

CTPD Executive Director Isaac Mwaipopo said Zambia should avoid projecting desperation if the country is to find sustainable solutions that will help it navigate through the growing debt crisis without further indebting the country.

Mr Mwaipopo further said there is need to clearly define what the country hopes to archive or get out of this restructuring efforts warning that failure to do so will just leave the country in more debt.

Mr Mwaipopo said the move by the Zambian government to seek help in refinancing the US$ 750 million Eurobond scheduled to mature in 2022 at this time may translate into increased costs due to the suspended IMF bailout program package.

He said Government should concentrate on realizing fiscal consolidation and the operationalization of a sinking fund.

“The Ministry of Finance informed the general public in 2017 that the government would operationalize a sinking fund that was to help government set aside funds for the repayments of Eurobonds when they fall due after 2021. This strategy had the potential to reduce the risk of default and ease pressure on debt servicing when the Eurobonds Mature,” Mr Mwaipopo said.

“Bond refinancing works better when a country’s credit rating and macroeconomic conditions improve because this could translate into lower yield rates on bonds. If a the yield rates fall below the coupon rate of the Bond, refinancing using the same terms as the original bond would translate into servings,” he said.

“Furthermore, the terms of the new bond can be altered to allow for better repayment terms. For Zambia, following the increased illusiveness of the IMF bailout package, and the adjusted debt-sustainability assessment from medium to high risk of debt distress, Zambia’s dollar securities became the worst-performing in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index, which includes more than 70 countries.”

He added, “CTPD is of the view that the Zambian government should first work on improving its credit worthiness by reengaging with the IMF and pursuing visible fiscal consolidation. Bond refinancing can then be done at reduced cost to the Zambian people.”

Mr Mwaipopo continued, “We are in agreement with the recent recommendations advanced by the IMF’s Resident Representative when he said government should not to tap into the international market at this time as the financing conditions are pretty tight right now, and would be very expensive.”

He stated that government needs to trade cautiously as it explores refinancing options adding that there will be need to count the cost and clearly establish payment plan from the very onset, otherwise it may turn out to another huge cost to the Zambian economy and the Zambian people.

“If Zambia is to acquire a bilateral financing bailout from Turkey, at what cost will this be What is in it for turkey? he questioned.

Mr Mwaipopo has since called upon the government to publish full details of the reported 12 trade and economic deals signed with Turkey.

He said this will help the public to know and appreciate what the country may be getting into as a country.

Source: Lusaka Times

Open ZambiaComment