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1. 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

2. Financing the Economic Stabilization and Growth Programme (Zambia Plus) in the Shadow of the IMF

Author:
Caesar Cheelo
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
In February 2018, the IMF reaffirmed its August 2017 formal withdrawal from negotiations with Zambia over a package of financial support. The strong position to hold negotiations came in the IMF’s Article IV Consultations report of 2017, which concluded that Zambia was at high risk of debt distress, and that whilst financial management and fiscal discipline were improving, the extent of the improvement was not sufficient to mitigate the growing public debt and fiscal deficit. Whilst the IMF deal may be off the table for the time being, the many of problems that drove Zambia to engage the IMF most assuredly remain unresolved. Two to three years after the economic minicrisis of 2015, Zambia continued to accrue sizable new debts, to utilize the proceeds poorly (to fund consumption spending) and to run persistent fiscal deficits – albeit a smaller and seemingly better managed deficit in 2017 compared to 2015 and 2016. These issues remain problematic despite the partial economic rebound, with high copper prices, good rains (leading to good harvests and more reliable power supply), and a stable Kwacha providing a strong platform for improvement. Nonetheless, fiscal performance is lagging behind and Zambia may be missing a window to reestablish prudent public financial management.
Topic:
Infrastructure, Governance, Reform, Macroeconomics, IMF, and Public Debt
Political Geography:
Africa and Zambia