Yesterday, Zambia borrowed another US$1.25bn at 9.375% interest rate, much higher than the previous two eurobonds in 2012 and 2014 – which are now also facing higher interest rate repayments, over market doubts about the sustainability of Zambian public debt.
The problem is not so much the debt per se, but the lack of clear plans for repayments, and what the borrowed money is spent on. There is no doubt that previous eurobonds have had some positive redistributive effects in the economy and that significant infrastructure development (especially roads) has been achieved. But there are still concerns about how much of the money has been spent to finance personal and party interests, diverted from much needed public service improvements for the benefit of all Zambians. The danger with this latest payment is that is simply going to fuel an unstable government intent on distributing money for short-term electoral purposes – general elections for parliament and a new president will be held in little more than a year.
If Zambia doesn’t make a plan, this amount of exposure makes it vulnerable to painful restructuring, austerity and resource grabbing by creditors in the near future – as the structural adjustment programmes of the 1980s and 1990s, and more recently, the Greek crisis remind us. Full repayment for the first eurobond is scheduled for 2022. Peter Sinkamba, presidential candidate for the Green Party, does well by opening up the discussion on his Facebook page today. Other presidential candidates and parties should follow suit.