71. 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