THE relations between the International Monetary Fund (IMF) and the Ministry of Finance has broken down and remain tense, African Confidential (AC) has revealed.
In its latest report, Africa Confidential revealed that Finance minister Margaret Mwanakatwe has failed to establish rapport with IMF.
“Last year, investors still believed there was a chance for IMF finance, though many Zambians realized Lungu would not stop borrowing and so scotch any chance of a programme. Relations between the Fund and the Ministry of Finance broke down and remain tense. Finance minister Margaret Mwanakatwe appointed in February, has failed to establish a rapport with the Fund, insiders say. Experts say IMF programme on a loan to support balance of payments are now essential. But the IMF wants Zambia to show that it will stop borrowing and get debt on a sustainable path. This requires tough decisions, cancellation of major projects and strict fiscal discipline, which do not appeal to President Lungu, especially as he already has his eyes on the 2021 elections,” read AC report in part. “Finance ministry insiders say the gap between the IMF’s view and the government is too wide for a programme to be possible this year. The Fund’s next mission is not until September, which is far off, given the urgency of the country’s problems. Mwanakatwe is trying to persuade officials to visit in June, the month before the US$56 million tranche of payments on Eurobonds is due. But it is Zambia that has to make the first move, by sending a strong signal to the IMF that it will stop borrowing. This will entail unraveling contracted but not yet disbursed loans and is no simple task. Much of the now US$9.1 debt stock consist of Eurobonds, Paris Club obligations and concessional lending from international financial institutions. So far, little of the roughly US$8 billion of contracted Chinese project finance has been included, yet almost US$800 million worth of airports, as well as road projects amounting to further billions of dollars.”
According to Africa Confidential report, Zambia’s uncontrolled borrowing was growing too large to be covered.
“Having said it was certain with its figures, Zambia’s Ministry of Finance has once again revised its external debt upwards from US$8.7 billion to US$9. 1 billion. While debt continues to rise, international reserves have fallen to just about US$1. 8 billion and the Kwacha is beginning to totter as the Central bank stops defending the currency’s value. At the same time, the government faces a media storm over corruption scandals involving President Edgar Lungu,” read the report in part. “In mid May, the Bank of Zambia updated its data on its foreign exchange reserves, which had dropped to a historic low in January, falling below US$2 (AC Vol 59 no. 7, Into the valley of debt). The bank is late with its data, prompting suspicions that it does not want to admit how low they are at a time when it needs to be restoring market confidence. The latest charts not only show that reserves fell to US$ 1.86 bn in February, but also revised the January figure to include an additional US$10 million in debt service payments from reserves.”
According to the report, the US50 million paid out for other government uses in January was likely to represent an installment of the US$ 380 million, the London High court ruled was owed to Libya’s Lap Green.
“Bank of Zambia data does not go beyond February, but Africa Confidential understands that the government also used a further US$43 million from the reserves to pay another tranche of Eurobond interest in April. The next payment of US$56 million is due In July. The dwindling reserves still appear to be the only source of funds for this exacerbating concern among investors in Zambia’s Eurobond, which fell yet again in the week beginning 21 May and are now yielding over 10 per cent. They are the worst performing bonds in the emerging markets,” read the report. “Bond-holders’ primary concern in now Zambia’s level of debt, while the state of uncertainty itself fuels fears. The government has repeatedly insisted that it has its figures clear and downplayed concerns over its lack of control over disbursements of Chinese loans. But then quietly revised them upwards, rather than admitting that it needs to do a more thorough reconciliation to establish the real level of indebtedness.”
AC report further revealed that the Zambian Kwacha was coming under growing pressure due to uncertainty in the local market.
“With such confusion over the debt and concerns that an economic crisis is now certain, the Kwacha is coming under growing pressure. Imports are significantly down so demand is low; nevertheless efforts by the Bank of Zambia have not prevented a slide. But the Bank now has fewer dollars in reserves to sell and has had to release more money into circulation after poor Treasury bill sales compounded the risk of a soaring fiscal deficit. In the week beginning 21 May, the Kwacha began losing value again and it is now at 10.3 to the US dollar. The weaker currency will only make Zambia’s already unsustainable debt service payment more expensive,” reported.