Download Policy Review Medium Term Debt Strategy

The American Chamber of Commerce in Zambia
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Policy Review: Medium-Term Debt Strategy
Key Points
 On 25 June 2015, Parliament voted to raise the debt ceiling from K35b to K60b. Finance Minister Alexander Chikwanda
has indicated that Government will borrow externally to fund an “unfinanced” 2015 budget gap of K10.5b.1 In 2012 and
2014, Government issued $750m and $1b in external debt, respectively.
 External financing can be used to fund consumption and investment, but comes with certain risks involved with future
repayment. The level of debt principal due between the years 2022 and 2025 may be difficult to repay without a
transparent debt management strategy and budgetary process.
 Transparency of Government’s plans to repay external debt will ensure long-term investors remain confident in the future
growth of the Zambian economy. This will encourage expansion of trade and investment.
Brief
The recently published IMF Article IV Consultation reports that Zambia’s debt sustainability is maintained under current
levels of borrowing ($1.75b external Eurobond funding) except for debt service-to-revenue ratio under several external
shocks in the years in which Eurobond principal repayments are due (2022 and 2024). Government has indicated that
internal modelling has shown similar results.
On 25 June 2015, Parliament voted to raise the debt ceiling for external loans from K35b to K60b after an announcement by
Finance Minister Alexander Chikwanda that Government would fund an “unfinanced” 2015 budget gap of K10.5b through
additional external financing of up to $2b. This would increase total external borrowing to $3.75b.
External borrowing can lead to enhanced economic growth when invested in priority capital projects and infrastructure. The
Government has, in the past, delineated priority projects to which external funding revenues would flow. The American
Chamber of Commerce in Zambia (AmCham) encourages continued transparency in the budgetary process, progress made
on projects funded through external borrowing, and Government’s plans for debt repayment.
Government should continually assess debt sustainability under a variety of economic risks and under different debt
burdens. Debt sustainability assessments (DSAs) should be made available to the public. Of specific focus should be the
repayment of principal for the two existing Eurobonds and the proposed third Eurobond, a total of $3.75b that would need
to be repaid within a period of three years.
Key external risks outlined in the IMF’s report include normalisation of monetary policy in the United States (resulting in
capital outflows and higher financing costs in Zambia) and continued low copper prices, with key internal risks including
inconsistent policy that could discourage production and investment in the mining industry and delayed fiscal consolidation.
The finalisation of the Medium-Term Debt Management Strategy by the Investment and Debt Management Department of
the Ministry of Finance is an important first step to strengthening transparency and debt management. AmCham joins the
Zambia Institute of Policy Analysis and Research (ZIPAR) in encouraging the inclusion of provisions in the Access to
Information Bill under consideration in Parliament to include provisions on public dissemination of information on public
debt.
Policy stability and transparency in Government’s use and repayment of external debt will boost private sector confidence
in the future of the Zambian economy and encourage continued investment and growth.
The American Chamber of Commerce in Zambia serves to further the development of commerce and promote the interests of
its members in trade and investment, and gather and disseminate information on trade and investment between the United
States of America, Government of Zambia, and American and Zambian business communities.
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