by TINTSWALO BALOYI in Johannesburg / MARIA MACHARIA in Nairobi
JOHANNESBURG, (CAJ News) – IN 2020, Zambia suffered the ignominy of being the first country in the continent default on its foreign debt, after it failed to honour a US$42,5 million payment on a Eurobond.
Its total foreign debt is estimated at over $17 billion, which is largely debt from the Bretton Woods Institutions comprising the World Bank (WB), the International Monetary Fund (IMF) and of course, Western nations.
The default, at the height of the coronavirus outbreak, is a reminder how badly African countries are descending into unmanageable debt. These debts make the West manipulate or use a weapon to control most African countries.
Hence, Zambia’s call on the IMF for a bailout, to the value of $1,4 billion, has been a divisive issue in a country that is increasingly polarised.
The new administration of President Haikande Hichilema is hopeful a deal could be concluded between August and September, pending the government’s commitment to undertake economic reforms.
Antoinette Sayeh, Deputy Managing Director of the IMF, who visited the southern African nation this week said her visit to Zambia was to further discuss how best Zambia would resolve its external debt with both IMF and WB.
This coincided with the meeting of the official creditor committee to begin deliberations on Zambia’s request for the debt treatment under the G20 Common Framework.
“We urge creditors to provide financing assurances as soon as possible, as they are needed before staff can put forward Zambia’s programme for consideration by the IMF Executive Board,” Sayeh said.
“This will allow Zambia to access Fund resources, and also unlock access to critical financing from other partners, to help boost its economic recovery,” she said in Lusaka.
Critics are not convinced the IMF deal would solve Zambia’s issues.
Akashambatwa Lewanika, the veteran politician and businessman, said the IMF’s involvement was reminiscent of the late 1980s when the government of then-president, Kenneth Kaunda brought the IMF and World Bank into Zambia.
The resultant economic problems led to deadly food riots.
Lewanika believes a deal with the IMF would further impoverish the southern African country.
Emmanuel Mwamba, former ambassador to Ethiopia, said perhaps Zambia should abandon the World Bank and IMF-led processes and concentrate on raising domestic revenue.
“The choice is ours (Zambia) to make,” the ex-envoy said.
Commenting on Zambia’s defaulting on the Eurobond, Mwamba said at least Zambia’s debt to China was mostly infrastructure project finance, which was as good as commercial or private debt, to China’s banks, especially, the Export and Import Bank of China.
China is Zambia’s largest bilateral lender.
Peter Fabricius, Institute for Security Studies (ISS) consultant, noted many African countries were sinking into unsustainable debt but Zambia had epitomised it by defaulting.
The debt has coincided with COVID-19 ravaging economies.
As of December 2021, the external debt from Kenya was estimated at KSh4,2 trillion approximately ($35,7 billion). The value was equivalent to 51 percent of the country’s total debt.
Trading Economics projects the debt to trend around KSh5,3 trillion in 2023.
The African Development Bank (AfDB) pointed out prior to COVID-19, Kenya was already on a high public debt trajectory.
The pandemic and related shocks have only compounded the debt situation in East Africa’s biggest economy.
“Consequently, the sustainability of the country’s public debt remains a major concern of not only the Kenyan authorities, but also among the populace, financial institutions, and other key stakeholders,” AfDB stated.
The IMF in April last year approved a three-year finance package to Kenya, to the tune of $2,34 billion.
A team from the IMF, led by Mary Goodman, conducted a hybrid mission to Kenya and in Washington to discuss progress on reforms and the authorities’ policy priorities.
“Kenya is on track to meet its fiscal objectives and put debt as a share of GDP firmly on a downward path,” Goodman said.
Kenya has a multi-year plan to reduce debt-related vulnerabilities.
Last year, fellow East African country, Ethiopia, requested G20 and Paris Club creditors to benefit from a debt operation under the G20 “Common Framework.”
In 2021, the national debt amounted to around $44,07 billion. Ethiopia is looking to restructure $1 billion of its sovereign debt.
Ethiopia is also considering more infrastructural borrowing from China, a country that has some friendly financial packages to African countries.
AfDB in February this year approved the Sustainable Borrowing Policy, aimed at strengthening debt sustainability among low-income African countries.
AfDB explained the policy responds to a changing debt landscape in Africa, where low-income countries have gained access to new sources of finance, including private creditors and creditors outside the Paris Club.
“Although this access has allowed them to finance important development needs, it has also increased their public debt,” AfDB stated.
The bank is also a participant in the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
HIPC provides debt relief to the 40 most heavily-indebted countries, 33 of them are in Africa.
The fourth edition of the African Union-African Peer Review Mechanism (AU-APRM) for 2021 noted that despite the successes in issuing sovereign bonds on the international markets, countries were still facing a challenge of high interest rates, which were driving government debt burden to unsustainably high levels.
On average, interest repayment is the highest expenditure portion and remains the fastest growing expenditure in the fiscal budgets of the majority of Africa’s Eurobond holders.
There are fears African nations could lose their sovereignty to other countries through failure to pay debts and loans.
The African Union (AU) is advocating for the easing of debt burden owed by member countries.
However, as explained by South African Minister of International Relations and Cooperation, Dr. Naledi Pandoor, measures to reduce debt burden or relief solely rest with each member state.
South Africa used its Chairship of the African Union (AU) in 2020 to advocate for the easing of the debt burden.
President Cyril Ramaphosa during the period directly engaged with the executives of the World Bank and IMF as well as leaders of the G7 to play their part in easing the debt burden in the continent.
Debt burden is widely viewed as a tool used by the West to control many African countries.
It is against this backdrop African countries are opting for loans from China, whose loan conditions according to Good Governance Africa (GGA) less onerous than the IMF’s.
The research and advocacy non-profit organisation experts highlight that the Chinese lending model in Africa allows low-income countries to access large-size loans for infrastructure if reimbursement can be guaranteed by lucrative commercial projects such as oil or mines or export revenues.
The infrastructure is then developed provided the commercial project remains profitable, in what is called a “mixed-funding” model.
Rather than stringent reforms, China allows loan recipients to choose and implement infrastructural projects as they deem fit.
GGA noted Western lenders often relied on the international financial organisation’s assessment of countries’ macroeconomic policies and readiness for reforms.
The IMF’s required reforms included open markets, scrapping government subsidies, deregulating key sectors, privatisation and debt management.
– CAJ News