International concern over Zambia is rising as the country’s debt levels continue to spiral out of control – but the country itself seems to have opted for a blasé approach. China remains the largest creditor to Africa’s second-biggest copper producer and analysts have warned that unless the country addresses its debt it faces a real risk of losing assets to the Asian giant. Last week Zambian finance minister Margaret Mwanakatwe, however, told Bloomberg in Washington she was not worried about Zambia’s declining foreign reserves, which had fallen to the lowest level in more than ten years. Calling the country’s increasing debt an “investment for the future”, she said the debt was for infrastructure development. It’s not a sentiment shared by the International Monetary Fund (IMF)
and ratings agencies. The IMF has issued several warnings to the country that its debt burden is excessive. This has been reiterated by all the ratings companies. According to Celeste Fauconnier, an African investment specialist and senior economist at Rand Merchant Bank, concerns over Zambia and its approach to its debt were rising. “We are very worried about Zambia and the approach taken,” said Fauconnier. “Its debt levels are incredibly high and have to be addressed. It is the biggest challenge facing African countries. Most of these governments, however, know they have to do something about it. They are aware of the risks and understand the importance of bringing that debt down.” But Zambia, said Fauconnier, was doing the exact opposite. Not only is it
unconcerned about debt, but, according to Mwanakatwe, the decline in reserves to less than two months’ import cover was nothing to worry about. Recently Mwanakatwe publicly declared that the Zambian government had mitigating interventions that would improve falling reserves. She has yet to disclose what these actions entail. According to the IMF, Zambia’s external debt has increased to $10.05 billion. This is significantly higher than the $8.74 billion of a year ago. “The country has also not managed to come to an agreement with the IMF on a package to assist with the debt,” said Fauconnier. “Its largest creditor is China which seems happy
to just restructure the debt. If Zambia continues on this path it is going to lose state-owned assets to the Chinese.” This was causing much uncertainty in the market and money was flowing out of the Zambian bond market at an increasing rate into more stable African economies. “At the moment Zambia might not be worried as the copper price is stable and they are getting paid in dollars,” said Fauconnier, “but if that price drops at all it is going to have a huge crisis on its hands.” Several large corporations are believed to have already pulled out of the country with more weighing up the options at present.
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