UNECA Cautions That Zambia’s Economy Risks Falling Back Into A Debt Trap And Higher Overall Taxation If The Economy Cannot Be Stimulated To Levels Commensurate With The Cost Of Public Debt

The United Nations Economic Commission For Africa (Uneca) Has Cautioned That Zambia’s Economy Risks Falling Back Into A Debt Trap And Higher Overall Taxation If The Economy Cannot Be Stimulated To Levels Commensurate With The Cost Of Public Debt

And Uneca Says Zambia’s Historical Eurobond Issue Is A Tipping Point For Africa With More African Countries Positioned To Follow In The Country’s Footsteps.

The Uneca Southern Africa Director Beatrice Kiraso Says The Capacity To Service The Debt Will Depend On Zambia Meeting Its Expected Growth Targets In The Next 10 Years, And Maintaining A Substantive Growth Outlook Later When The Bond Is Due For Retirement.

Ms Kiraso Adds That It Is Also Important To Ensure That The Additional Productive Capacity To Be Gained From The Debt Finance Should At Least Cover The Cost Of The Debt Over Its Amortization And That Requires Prudent Management Of The Proceeds Of The Debt As Well As Continued Vigilance On The Fiscal And Monetary Front.

Meanwhile, Uneca Has Applauded The Zambian Government For Its Commitment To Utilize The Eurobond Money On Infrastructure Development As Stated By Minister Of Finance Alexander Chikwanda,In His 2013 National Budget Speech That “The Proceeds Of This Bond Will Not Be Utilised On Consumption But On Growth Promoting Infrastructure Projects”.

Ms Kiraso Says The Success Of The Zambian Eurobond Issue Was Hugely Unexpected And Stunned Even The Most Seasoned Emerging Market Analysts.

She Says With A Book Order Of About $12 Billion For A $750 Million Bond, It Was Oversubscribed By A Spectacular 15 Times Outclassing Other Hard Currency Debt Issues By Even Higher-Rated Sub-Saharan African Countries.

Ms Kiraso Says Although Zambia Follows Nine Other Sub-Saharan Countries To Enter The International Bond Market, With Ghana Paving The Way In 2007, “This Historical Bond Has Been Widely Touted As A Tipping Point For Africa.

According To Ms Kiraso, This Is Important For The Continent Because It Faces A Huge Infrastructure Financing Deficit In The Face Of Projected Declines In Official Development Aid (Oda) And Trade-Related Tax Revenues, And Higher Costs Of Borrowing On Global Credit Markets.

She Says Countries Are Under Pressure To Diversify Sources Of Sovereign Funding.

Ms Kiraso Says More African Countries Are Positioned To Follow In Zambia’s Footsteps Should Market Conditions Remain Favourable Adding That There Are Many More Natural Resource-Rich And Fast-Growing African Countries That Possess Attributes Similar To Zambia That Investors Will Find Appealing.

She Says The Question Is; What Does This $750m Eurobond Mean For Zambia And The Rest Of The Continent Who Are Likely To Look To Sovereign Debt For Funding? What Impact Does The Bond Have On International Trade, Capital Investments, Job Creation And Poverty Reduction?
Ms Kiraso Has Advised That Zambia Has To Remain On A Positive Growth Target For The Next 10 Years If The Bond Will Have No Adverse Impact On Future Growth.

She Says There Are Three Main Things To Look Out For; The Expected Value Of Assets Acquired By Debt Finance; Interest Rate Risk And Exchange Rate Risk And Capacity To Service The Debt.