Finance Minister Alexander Chikwanda has acknowledged that government spending has exceeded the state budget, however he sought to ally any fears that this deficit would pose any risk to Zambia’s ability to meet debt obligations.
Chikwanda, speaking during a rare press conference held on Sunday at the Taj Pamodzi Hotel in Lusaka, said that his ministry would pursue a prudent borrowing strategy to steer the country through global contractions and insecurity.
The size of Zambia’s budget deficit was not disclosed during the briefing, however Chikwanda cited spending on maize by the Food Reserve Agency as well as oil procurement before the cancellation of subsidies.
“When we presented the budget in October last year, there was a gap, like in all budgets, which we will manage by borrowing locally and externally,” he said, later adding that human resource management strategies also form part of the solution when it comes to issues like civil service salary adjustments.
Chikwanda’s comments come as Zambia prepares to pay off the first 5.625 per cent coupon on last September’s US$750 million Eurobond.
According to Felix Nkulukusa, permanent secretary at the ministry, the government broke the payment into two parts, the first of which was paid in March. The second will be delivered next month, and Nkulukusa said the payment will be made regardless of tensions elsewhere in the country’s financial apparatus. He said next year’s interest payments will be allocated in the government’s 2014 budget, and that pattern will continue until the bond reaches its ten-year maturity.
“Donor commitment will be getting lower and lower,” Chikwanda said. “This will increasingly be the way for Zambia.”
Numerous public bodies in Zambia have been approaching the bonds market since government rallied the Eurobond, including Lusaka City Council, the Road Development Agency, and Zambia Electricity Supply Corporation Ltd. And even though government doled US$120 million from the Eurobond to Zambia Railways, the company will reportedly need US$1 billion to refurbish, and so borrowing pressure is high in its corridors as well.
When Zambia issued the bond last year, it joined a growing list of Sub-Saharan African countries entering the bond market. Ghana broke the ice in 2007, issuing a $US750 million Eurobond at an 8.5 per cent coupon rate. Nine other countries, including Zambia, followed suit by February 2013.
Fiscal observers like economist and blogger Chola Mukanga note that while Zambia does have room to borrow thanks to a swell of post-millennial debt forgiveness precipitating from its erstwhile status as highly indebted poor country, a fusillade of borrowing won’t be sustainable, especially the higher risk sort that occurs on bond markets. Writing in his blog, Mukanga recommends against debt-acquisition by public bodies until increased Parliamentary oversight is brought to bear in the form of a clear debt-management strategy.
At the breakfast conference, Chikwanda said the country’s debt to GDP ratio now stands at approximately five per cent, a level the government intends to hold. He said the Eurobond proceeds will be disseminated only for development growth projects, and only when the time is right. Issues like civil service salary adjustments can be dealt with through negotiation.
“We managed to talk to them and get them to accept that the increases won’t take effect until the first of October,” said Chikwanda, adding that gaps of that nature were a result of maintaining the fuel subsidy for too long.
Paul Carlucci is a Lusaka-based freelance journalist. He contributes often to Think Africa Press and is the author of The Secret Life of Fission, out this fall through Canada’s Oberon Press. Follow him on twitter @paulcarlucci
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