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1. An Analysis of the Legal Framework for Public Debt Management in Zambia

Author:
Florence Banda-Muleya, Mbewe Kalikeka, Zambwe Shingwele, Philip Ngongo, and Shebo Nalishebo
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
Zambia’s current legal framework for public debt management is inadequate. The high level of external debt standing at US$11.2 billion and domestic debt at K80.2 billion due to fast pace of debt contraction; the resulting heightened risk of debt distress; and the weak implementation of the 2017-2019 Medium Term Debt Strategy (MTDS), raise questions on the adequacy of the laws that govern public debt management. Now more than ever, with Zambia quickly headed to its first bullet repayment on its Eurobond debt, the country needs to enhance its legal framework on Public Debt Management (PDM).
Topic:
Debt, Government, Economy, and Public Debt
Political Geography:
Africa and Zambia

2. Reversing Zambia’s high risk of debt distress

Author:
Florence Banda-Muleya and Shebo Nalishebo
Publication Date:
08-2018
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
A load of unsustainable debt hangs heavy over Zambia. Zambia is part of a list of 25 low income countries considered at high risk of debt distress in 2018. Government’s efforts to reduce the country’s infrastructure gap as well as bring down poverty and inequality have resulted into large spending overruns, a growing subsidy bill and a substantial public sector wage bill over the last five years. Alas, domestic revenues remained low and stagnant. So Government resorted to massive external borrowing to finance arguably unsustainable expenditure. This approach to spending pushed borrowings to about 59% of GDP as at end of 2017, which is in the territory of unsustainable debt levels. In October 2017, the IMF issued a red flag that Zambia was at high risk of debt distress, implying that the country was likely to breach the thresholds for debt and debt service indicators and, should it continue on the same trajectory, it would likely default on its debt service obligations.
Topic:
Debt, Poverty, Economy, and Public Debt
Political Geography:
Africa and Zambia

3. Rental Taxation: Curbing Non-Compliance and Improving Administration

Author:
Florence B. Muleya, Shebo Nalishebo, Malindi Msoni, Mukuka Mulenga, Evaristo Mwale, and Yenda Shamabobo
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
Since 2013, the Zambian economy has grappled with a high fiscal deficit. Many stakeholders continue to implore the Government to take measures to ensure that the tax base is broadened, voluntary compliance improved and domestic resource mobilisation enhanced to reduce the deficit. Consequently, there has been a call on the tax administration authority to rethink its tax collection strategies and bring more individuals and firms into the tax net. Recently, the Government reiterated its commitment to enhance resource mobilisation in the 2019 Budget Speech. Improved administration of taxation in the housing sector, particularly rental properties, offers a promise as one of the options to increase tax revenues especially if more tax payers are captured under this tax net. However, the administration of individual rental income tax faces many challenges.
Topic:
Economy, Tax Systems, and Rent
Political Geography:
Africa and Zambia

4. Scaling the Eurobond Debt Wall

Author:
Shebo Nalishebo and Florence Banda-Muleya
Publication Date:
11-2017
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
The writing is on the wall - Zambia is at a high risk of debt distress: The country risks defaulting on repaying the principal amounts of the three Eurobonds due during 2022-2027. A default could lead to exclusion from the international capital markets, a dented reputation which would culminate into a decline in Foreign Direct Investments and reduced credit to the private sector and credit rating downgrades. This would ultimately result in an economic contraction which would affect future payments and further compounding the default. Government has to pay back US$750 million in 2022, US$1 billion in 2024 and US$1.25 billion over 2025-2027. Between 2018 and 2022, Government will spend about US$237.4 million per annum in interest payments towards the three Eurobonds – this annual amount is about the same as the entire social protection budget in 2017. Policy measures have been put in place to manage the debt, but they seem inadequate: The measures include a debt management strategy that will guide borrowing decisions in the medium term. The Government has also signalled its intensions to set up a sinking fund and/or refinance the debt – essentially replacing the old loans with a new loan offering different, perhaps more favourable, terms. To set up the sinking fund, Government intends to set aside K100 million in 2018, K800 million in 2019 and K3.97 billion in 2020. But setting up the fund requires an excess of K6 billion per annum between 2018 and 2022. No clear indication has been given with regard to when refinancing will be considered. So the plans put in place may not be adequate to pay back the Eurobonds. Government should not wait until it is too late: In order to meet the principal and interest payments on the three Eurobonds, Government needs to start the strategies for paying back the Eurobonds sooner rather than later. Government has already lost time as a pay-back plan should have been instituted for the Eurobonds as soon as they were issued. But without any budget surpluses, and with foreign financing having somewhat dried up, Zambia has to look to more domestic resource mobilisation to raise the funds needed to pay back the Eurobonds.
Topic:
Government, Economy, Public Debt, and Eurobonds
Political Geography:
Africa and Zambia

5. A Cautionary Tale of Zambia’s International Sovereign Bond Issuances

Author:
Shebo Nalishebo and Albert Halwampa
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
In recent years, Zambia has been faced with the increased need to plug huge infrastructural gaps. However, the slowing down of bilateral and multilateral financing due to austerity measures in developed economies has made the country diversify its budget and project financing options by issuing Eurobonds. Eurobonds are commercial borrowings by governments in currencies other than their own - in Zambia’s case, the borrowing is denominated in US dollars. Since 2012, the Zambian Government has issued two ten-year sovereign bonds collectively worth US$1.75 billion mainly to finance infrastructure projects. Eurobonds bring with them opportunities for economic development, but there are risks. This report assesses the current legal and institutional frameworks governing borrowing from international capital markets in Zambia, including the role of credit rating agencies. It also examines the benefits, costs and risks associated with the issuance of sovereign bonds, including the cost and risk of sovereign defaults. It also proposes the mitigation of these costs and risks. Eurobonds offer African countries easy access to monies that are free from the stringent conditionalities that often come with the traditional concessional borrowing. Eurobonds also strengthen macroeconomic discipline and are used as a benchmark for pricing subnational bonds. If the borrowed funds are spent on projects that offer a greater scope for augmenting revenue earnings and creating employment opportunities, this would accelerate economic growth and reduce the high poverty levels that Africa faces.
Topic:
Economy, Economic Development, Public Debt, Bonds, and Eurobonds
Political Geography:
Africa and Zambia

6. Eurobonds Repayment: Limiting the Risks

Author:
Shebo Nalishebo and Albert Halwampa
Publication Date:
03-2015
Content Type:
Policy Brief
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
In recent years, the Zambian economy has been growing strongly and the country has increasingly been faced with the need to plug huge infrastructural gaps. However, the slowing down of bilateral and multilateral financing due to austerity measures in developed economies and the World Bank’s reclassification of Zambia as a lower middle income country has led financiers to divert concessional loans to other needy countries in the low income bracket. Consequently, Zambia has had to diversify its budget and project financing options by issuing Eurobonds which are commercial borrowings by governments in currencies other than their own - in Zambia’s case, it is denominated in US dollars. Since 2012, the Zambian Government has issued two ten-year sovereign bonds collectively worth US$1.75 billion to mainly finance infrastructure projects. These two bonds amounted to 37% of Zambia’s external debt in 2014. With an average coupon rate of 6.9%, the two bonds have bullet repayment structures, implying that lump sum principal payments will be paid at the end of their respective ten-year maturity periods. The coupon rate is the interest rate at the time of issuance. Notwithstanding the high interest payments of over US$125 million annually, the bullet structure of the two bonds may have significant repayment risks as the country is expected to pay out the US$1.75 billion within a two-year period (in 2022 and 2024). The country may experience difficulty in repaying or refinancing the face value at maturity if the money is not spent in activities with high economic returns and if there are adverse changes in its exchange rate or international market conditions. The risks are already on the horizon – the recent depreciation of the Kwacha has increased debt servicing costs, while the low copper prices have reduced the much-needed export revenues used to service debt. Has Zambia dug itself into another debt hole? What measures can be put in place to mitigate the risk of a pending default?
Topic:
Economy, Economic growth, Bonds, and Eurobonds
Political Geography:
Africa and Zambia