US$1.25Bn Eurobond will crowd out public investment – ZIPAR

The Zambia Institute for Policy Analysis and Research (ZIPAR) has observed that the issuance of the US$1.25 billion Eurobond by Government will increase interest payments on the three Eurobonds.

ZIPAR is projecting that between now and 2022, interest payments for the three Eurobonds will increase from US$125 million to over US$240 million annually.

Shebo Nalishebo

ZIPAR Research Fellow Shebo Nalishebo has also observed that the US$1.25 billion Eurobond has come at a time when the country’s economy is faced with numerous challenges.

Mr. Nalishebo has cited the depreciating Kwacha, a much higher-than-budgeted for fiscal deficit, a widening trade deficit, challenges with the mining tax regime and declining non-traditional exports as factors having a bearing on the economy.

He has told Qfm News that other challenges include 30-50% drop in electricity supply, which is likely to reduce production and productivity, and ultimately dampen growth even further than the 5.8% revised economic growth for 2015.

Mr Nalishebo states that given such challenges in the economy, it is therefore not surprising that the third Eurobond, with at an annual interest rate of 9.375%, is more expensive than the 2012 and 2014 Eurobonds whose interest rates were 5.375% and 8.5%, respectively.

He says this means Zambia will pay US$117.2 million annually in interest until 2025 on the new Eurobond alone.

He says while the third Eurobond should provide some respite for the weakening Kwacha, and is also expected to reduce the reliance on short-term expensive domestic debt, the higher interest payments on Eurobonds are likely to crowd out public investment and social spending.

Mr. Nalishebo however reiterates ZIPAR’s position that commercial borrowing from international markets can be beneficial if the proceeds are invested wisely.

He has advised government to avoid the temptation and pressure for fiscal spillages in addition to fast tracking the sinking fund that the Ministry of Finance has established and extend it to the third Eurobond.