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The American Chamber of Commerce in Zambia 1200 Twikatane Road ǀ Lusaka, Zambia ǀ Tel: 0969 918 843 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. Stay Connected! www.amchamzambia.com ǀ www.facebook.com/amchamzambiahq ǀ www.linkedin.com/Zamb1aChamber