ZAMBIA

In late 2020, Zambia missed a USD 42.5 million interest payment on the USD 1 billion Eurobond due in 2024. Zambia’s finance ministry has consistently prioritised repayment of concessional loans and restructuring of Chinese debt over servicing of commercial loans and bonds, as the country faces a critical debt repayment crisis. IMF support is not guaranteed, and debt restructuring may take years. Questionable fiscal policy – characterised by excess taxation on productive sectors such as mining – has undermined productivity, revenue, and exports. Meanwhile, nationalist economic policies continue to disincentivise investment. The government’s weak response to the coronavirus amidst economic decline and rising public debt may come to taint President Edgur Lungu’s presidency ahead of elections in 2021. Towards these elections, political and socio-economic protests will become more frequent in major cities and industrial and mining areas. The government is already facing an increasingly critical backlash from donors and diplomatic partners over its repression of political freedoms ahead of these elections.

• Seeking re-election in 2021 will be President Lungu’s ultimate ambition and dominate all policymaking until then. However, President Lungu’s bid for a third term and to further ramp up borrowing was recently dealt a political blow. A legislative bill which would have allowed Lungu to change the electoral layout and take control of central bank monetary policy — ahead of elections due in August – failed after less than the required two-thirds majority of lawmakers voted in favour, in a major political defeat for Lungu and the PF party.
• Social stability has been compromised following a series of unprecedented attacks and violent riots. The attacks themselves reportedly sparked civil unrest and episodes of mob violence across the country, peaking in mid-February 2020. At the height of the unrest, several social media posts emerged that spread false information about both the attacks and the violence. The landfall of the coronavirus in the country amid such tensions, raises the prospects for further violent unrest and rioting. Further securitisation of the state during this period is therefore not unlikely.
• Zambia faces the biggest debt crisis in the era of the coronavirus among emerging market peers. The country’s Eurobonds and currency have been among the world’s worst performing this year, exacerbated by the 2020 default. General gross government debt stands at 120 percent of GDP this year, as economic output shrinks by at least 4.8 percent, and the government continues to run a fiscal deficit of around minus nine percent of GDP. The government faces approximately USD 1.5 billion in external debt servicing (105 percent of current international reserves) this year. This sizeable amount will be followed by Eurobond repayments of USD 750 million in September 2022 and USD 1 billion in April 2024. The third USD 1.25 billion Eurobond will be paid back in three instalments in July of 2025, in 2026, and in 2027. Yet, with less than three years before the first Eurobond matures, there is no indication of where the money to pay back these Eurobonds is going to come from.