Zambia calls for suspension of debt service payments in first pandemic-related default in Africa

President Edgar Lungu’s government has asked international bondholders to suspend demands for interest payments on US$3 billion of international bonds from October.

The bonds, issued since 2012, are only part of Zambia’s $12 billion debt, which has risen from 20% of GDP to 78%. Multiple reports estimate actual debt figures to be at least double official statistics, mostly due to off-balance sheet loans from China for public-private partnership infrastructure deals that may include the underlying assets as collateral. .

Two-thirds of bondholders must agree to the postponement of the Zambia project at a meeting scheduled for September 29.

The debt service freeze, if agreed, would be the first de facto default of African debt to private creditors since the start of the pandemic, with Angola, Ethiopia and Ghana being also considered likely to default and Kenya saying it is at risk of becoming over-indebted. Chad has asked Glencore Plc, the world’s largest commodities trader, and other private lenders to suspend $100 million in debt payments this year.

More than a third of African countries are nearing debt distress, according to the International Monetary Fund (IMF), raising fears in global markets that there is a rush in bond markets as other African countries prepare. to default on their debt.

It bears witness to the extent of the economic disaster affecting a large part of sub-Saharan Africa. Stuart Stevens, head of fixed income research at Tellimer Ltd. in London, said Bloomberg, “Zambia could open the door to other sovereigns in distress. The longer the pandemic persists and the longer it takes for countries to recover, the more likely it is that countries that already had weaknesses at the start of the crisis will have to restructure.

Zambia’s economic crisis took years to prepare. The country saw growth in the decade following debt relief from 2005 to 2015, but the IMF-dictated privatization of major state-owned enterprises, particularly the country’s copper mines – its main source of income – led to drastic cuts in public spending and social protection. programs. Social protection measures have fallen to just 2.4% of the 2020 budget.

Heavily dependent on multinational copper mining companies which are notorious for paying very little tax, the government saw its budget deficit soar to 10.9% of GDP in 2019.

In April, when Glencore, the British multinational commodity trading and mining company headquartered in Switzerland, sought to mothball Zambia’s Mopani copper mines, the government blocked the move as illegal and threatened to revoke Glencore’s license in order to strengthen its own position in the Copperbelt. province ahead of next year’s election.

Glencore is eager to sell its stake in the mine to the government, but it is far from clear how the government can pay for it and fund the running costs of the mine. Zambia’s total foreign exchange reserves stood at $1.43 billion at the end of June, equivalent to just 2.3 months of import cover, according to the central bank.

The Zambian ruling class reigns over staggering levels of social inequality and poverty. One in two Zambians lives below the poverty line. Only 700,000 of the approximately 8 million Zambians living in poverty benefit from a social protection programme. 90% of the workforce works in the informal sector, with the vast majority working in agriculture. Among those working in the informal sector, 90% earn their wages from day to day.

The onset of the pandemic-induced recession saw copper prices fall by up to 16% as global demand collapsed. The currency fell 28% against the US dollar, on top of a 21% fall in 2019, while inflation soared to 16%, adding to the plight of Zambian workers and their families.

The government is accelerating the back-to-work campaign as the country’s economic situation deteriorates. President Lungu announced the reopening of schools, colleges and universities – closed since March 20 – between September 14 and 18, as well as bars and other places of entertainment.

He is now trying to push teachers and students back into school so that parents can be brought back to the workplace to start pumping profits for the multinational corporations and the national bourgeoisie again. The government used a temporary lull in the number of cases and, according to the government, the “insignificant number of pupils and students who contracted” COVID-19 in previous examination classes, to justify a new lifting. restrictions.

While some 14,550 cases have been confirmed and 332 deaths so far, the virus is guaranteed to spread unchecked as testing remains extremely low and contact tracing and quarantine measures have all but been dropped.

The country’s efforts to secure IMF relief have been met with opposition from Washington, which fears that any debt relief given to Zambia will benefit China. Beijing has lent the country $11 billion, much of it backed by roads, airports and mines, under public-private partnership deals on numerous infrastructure projects. The IMF insisted that Zambia solve these problems before granting a loan.

The economic crisis has caused tensions within the ruling class over how to proceed, as the government is reluctant to impose further tax cuts and increases ahead of next year’s election and Lungu is increasingly taking action. erratic and authoritarian. The ruling Patriotic Front (PF) declared Lungu as its presidential candidate, despite controversy over his eligibility to run for a third term.

Political repression has increased. Independent media platforms have been shut down, including First TV in April this year. Student unions in universities have been abolished. Prominent activists who have questioned the government on issues such as corruption have been harassed by police, arrested on trumped up charges or denounced as opposition sympathizers and Western agents.

Amnesty International reported that police were seen beating people indiscriminately on the streets and in pubs after they were found in public during the lockdown. National police spokeswoman Esther Katongo, speaking on national television, said police had adopted a strategy to “hit” and “detain” anyone found on the street. “We hammer you, we hit you, then we do a detention. If you escape, you’re in luck.

Last month Lungu sacked Denny Kalyalya, the governor of the Central Bank of Zambia who had worked for the World Bank for years. Grieve Chelwa, a professor at the University of Cape Town’s Graduate School of Business, said: “There has been a struggle for control of the central bank… [the firing] could be a response to the government’s failure to pass a constitutional amendment that would remove responsibility for printing money from the Bank of Zambia.

In an effort to divert growing social discontent outward, the government has escalated tensions over a long-running border dispute with the Democratic Republic of Congo (DRC) over a handful of villages in the country’s northeast along from the shores of Lake Tanganyika—Kubanga, Kalubamba and Moliro. While the two countries signed a treaty in 1989 to end the dispute, its terms have not been implemented as both sides claim to be encroaching on their territory. In March, the Zambian government deployed troops to the Congolese side of the border, sparking clashes with one soldier dead on either side.

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