World News – CA – Zambia’s default risk shines a light on Africa’s debt crisis

KAMPALA, Uganda – Faced with financial difficulties exacerbated by the coronavirus pandemic, the southern African nation of Zambia appears to be heading towards a default on its debt to private investors

Zambia, one of the world’s largest copper producers, has been heavily in debt for years, but could now earn an undesirable reputation for financial unreliability if a group of investors with $ 3 billion hold Eurobonds insists on overdue payments Zambia requests six-month leave, but bondholders’ final decision pending

The cash-strapped country is a good example of debt distress for other governments in Africa even as they try to focus limited resources on pressing issues such as health and education. Zambia will be watched by other countries that owe large sums not only to private bondholders, but also to commercial banks and state lenders such as China

A debt moratorium granted by G20 countries in response to the pandemic that has freed up to $ 20 billion for low-income countries ends in late December, and African governments are seeking an extension to free up additional resources to fight the COVID-19 pandemic and help struggling economies

A default on private debt is damaging to investors, and the credit rating agency Fitch downgraded Zambia to near-junk status after the government tried to delay interest payments to bondholders by September

Zambia’s impending default « certainly sends the wrong signal to investors, » said Stephen Kaboyo, a Ugandan analyst who heads asset management firm Alpha Capital Partners “There’s always a peer-to-peer comparison,” he said. “They ask themselves, ‘Who’s next? «  »

Abebe Selassie, the director in charge of Africa at the International Monetary Fund, sought to allay the concern at a press conference in October 22, saying he hoped the market would differentiate Zambian assets from others in Africa

« This is what we are seeing so far, and I hope it will continue to be the case, as it is elsewhere, » he said

South Africa-based research firm NKC African Economics, in an assessment of Zambia’s unrest, said it saw a « moderate » risk of contagion in the wider region and warned that the related disturbances pandemic in global trade could increase the risk of default in the entire sub-sector -Saharan Africa region

A « protracted external shock could disrupt refinancing efforts » in Kenya, Ghana and Senegal in the debt cycle that begins in 2021, he said

Many countries in sub-Saharan Africa, from Cameroon to Kenya, have issued Eurobonds over the years, racking up debts that fall due as the financial burden increases amid the pandemic

The World Bank and the IMF have announced relief measures, including the release of billions of dollars in debt repayment, and some African countries have obtained more loans from these institutions But debt anxiety will get worse at the end of the year

Nathan Hayes, analyst at the Economist Intelligence Unit, told The Associated Press that for Africa, « the situation is different in 2021 » as $ 20 billion in private bonds mature in addition to $ 14 billion in bilateral debt

« These debts are highly unlikely to be part of a new suspension initiative, as they would reflect negatively in sovereign credit ratings and potentially restrict market access at a crucial time, » he said. -he declares Maintenance burden will rise again in 2021, putting pressure on governments

The appetite for debt has increased dramatically in Africa as governments launch ambitious public works which they believe will support growth in the years to come Projects are often financed with Chinese capital and built with the ‘Chinese expertise In turn, China has been keen to exploit Africa’s vast natural resources in countries like Zambia, which is also a major producer of cobalt

Backed by credit from China and other outside sources, the Zambian authorities have spent on everything from highways to airports, on projects sometimes marred by official corruption This spending is likely to slow due to the pressure to cut back arrears, and there are several reports of blocked projects, including a $ 450 million dam

China holds about a third of Africa’s sovereign debt, and there are fears that heavily indebted countries will fall into a trap and even lose their sovereignty Although largely silent on global calls for debt relief. Africa debt, China has indicated its willingness to renegotiate and restructure debts to African countries, especially those that export important commodities like oil, according to Hayes

It is still unclear whether the international community will do more to help African governments in serious debt

African finance ministers have asked the international community for a $ 100 billion stimulus package, of which $ 44 billion will come from a debt service freeze They also said an additional $ 50 billion could be needed in 2021

But if African governments can negotiate around bilateral debt and even win cancellations, sovereign bonds are another matter

A government is ‘finished’ if it cannot be called upon to make payments on sovereign bonds, said analyst Julius Mukunda, who heads a budget advocacy group that has sounded the alarm bells about the Uganda’s debt surge

Although Uganda has never issued Eurobonds, he said, « we have a problem » as this East African country is spending much more of its budget on payments foreign interests than the agricultural sector, a backbone of the economy

As for Zambia, « they have to borrow to pay off the debt », he said « You need an IMF package to save you »

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Africa, Zambia, Finance, Debt, Default, China, Government