With the objective being to pluck Zambia out of its protracted debt crisis, the country’s newly appointed Finance Minister Situmbeko Musokotwane, last week on Friday made a pledge to conclude talks with the International Monetary Fund (IMF) on matters of lending programme by October.
The newly elected president of Zambia Hakainde Hichilema, pledged at his swearing in ceremony to bring public spending under control.
Situmbeko Musokotwane who held the same title from 2008 to 2011 and is also considered to be an experienced international economist, was named as the country’s finance minister three days after Hichilema’s swearing in ceremony.
“Unless we do something to the budget, then the budget will be mainly for paying salaries and also servicing debts,” Musokotwane stated in a news conference after his appointment.
Musokotwane also held positions with the IMF and World Bank, and will face fraught negotiations with multiple creditors on the country’s $12 billion external debt.
He said the answer is to talk to the people they owe money to so that they can agree on paying at a slower pace stretched over a longer period.
It is alleged that Zambia has a foreign debt of $3 billion in Eurobonds, $3.5 billion being a bilateral debt, $2.9 billion owed to commercial banks and $2.1 billion is owed to multilateral lending organisations such as the IMF.
About a quarter of the total is held by China or Chinese entities through agreements that have strict secrecy clauses, hence escalating the situation from bad to worse and making talks for IMF debt relief a lot more tough.
During boom times in the last decade, the Zambian government borrowed excessively but was then struck by a fall in commodity prices which resulted in a recession worsened by the impact of the Corona-Virus pandemic.
Hichilema’s election is Zambia’s third peaceful shift of power to an opposition party since independence from Britain in 1964 and the country’s dollar dominated sovereign bonds has since rallied.
The bonds increased by around 11 cents across the curve since Hichilema’s election and the spread of the debt over safe haven US Treasuries narrowing to 1,961 points last week, which is the lowest since March 2020 last year.