Zambia in November became Africa’s first pandemic-era sovereign defaulter after missing the $40 million payment on one of its $3 billion in Eurobonds.
Zambia found itself in this economic quagmire due to its lack of financial prudence in borrowing funds from European and Chinese lenders – as opposed to the less expensive lenders from the Breton Woods institutions and the African Development Bank.
In addition, the country’s flawed and unregulated regime of remittances abroad from its copper mines in Zambia which are part of the foreign direct investments (FDI) have not helped Lusaka in its quest for a healthy balance in its National Treasury.
Economists noted that current financial regulations in the country allowed mining investors to remit their profits abroad without informing or disclosing to the government through its central bank – the Bank of Zambia – how much they had sent out.
Perhaps this might explain why FDI in copper mining attracted so many investors to Zambia to revive the once-abandoned and unprofitable mining operations back to life with the knowledge that this was a no-lose situation.
This strange and lopsided economic relation between foreign mine investors and the host government has been faulted, considering that copper earns 73% percent of the country’s forex, local economists observe.
And from the economists’ calculations, the externalised remittances – which remain undisclosed -- were more substantial that they surpassed the Zambian government’s revenue, leading the country to struggle to pay its debt.
Last November President Edgar Lungu’s government failed to make a debt payment of $40 million due to its foreign lenders, leading economists to believe that the country was on the brink of defaulting on its multibillion-dollar debt.
An appeal to its European lenders to extend time for a US$40 million payment failed to get a positive response from the European commercial bankers who have loaned Zambia US$9 billion, according to economists familiar with the issue.
Chinese lenders, however, agreed to extend the due date for the next part payment to April for the US$3 billion debt owed to them, the economists said.
Critics have faulted Lungu’s poor economic leadership in Zambia’s economic woes, saying that the country’s system of leaving complete control of government finance decisions under his office, and not the Finance Ministry, was not conducive to good finance management.
In fact, the critics pointed out, when Lungu’s ruling Patriotic Front party took power in 2011, the country’s debt was at a manageable level after Zambia’s US$2 billion dollars of debt was written off under the Multilateral Debt Relief Initiative in 2005.
The PF, however, with political campaign promises still fresh on the drawing board, went on a borrowing spree to finance development projects that included multi-million-dollar projects in roads, energy, and infrastructure such as stadia and modern office buildings.
These mega projects, some of which were completed and others abandoned due to lack of funds, have not been able to earn much revenue for the government to enable it to pay back the debt incurred for their implementation.
This vicious cycle reached a point where the Lungu regime returned to the lenders to borrow more money once more to use it to pay for the original debt, the economists explained, resulting in the current unpaid debt spiral which is on the brink of default.
Zambia's Finance Minister, Bwalya Ng'andu said he expected to secure an IMF loan to underpin debt-restructuring talks with the external creditors, especially the European lenders, before the nation holds elections in August.
“We want a deal. There is absolutely no desire on our part that we delay things to election time and we are hopeful that we’ll be able to reach some agreement with the IMF,” Ng’andu said.