Former Finance Minister sees Zambia's foreign debt rising by 43%

Zambia’s external debt may grow by more than 40 percent to US$13 billion next year as the cost of planned projects are added to the total, and debt-servicing charges could double, according to former finance minister Alexander Chikwanda.

The government could face debt-servicing costs of US$1 billion next year, from US$500 million to US$600 million this year, due to new loans, Chikwanda said Sunday in comments broadcast on state-owned ZNBC television.

“If we are to be honest, there are also pipeline items. So by the time we go into next year, our external debt would rise to as much as US$13 billion, at which point debt servicing will become quite critical,” said Chikwanda, who served as finance minister from 2011 until 2016. 

“It’s going to be a challenge to service the external debt,” he added.

His statement could fuel concerns about the sustainability of Zambia’s foreign debt levels, which has helped make the country’s Eurobonds the world’s worst performing this year. Already, external loans ballooned from US$2 billion when Chikwanda took over as finance minister to US$9.1 billion at the end of February, and the International Monetary Fund said the country is at a high risk of debt distress. Some investors are worried Zambia’s debt levels may be higher than the official number, but government says its totals are accurate.

Finance Ministry officials didn’t immediately respond to text messages seeking comment.

The country will probably have to refinance its US$3 billion in Eurobonds, the first US$750 million of which falls due in 2022, and investors will be “very happy to,” because of the attractive interest rate, Chikwanda said. With yields on Zambia’s US$1 billion Eurobonds due 2024 at 10.8 percent, that could be costly for the government.

Zambia will need to re-negotiate some of the loans it got from Chinese lenders, he said, echoing statements from current Finance Minister Margaret Mwanakatwe. Some of the projects they financed were too expensive and Zambia can rely on its good relations with China to get more sustainable loan terms, said Chikwanda, who serves on the ruling Patriotic Front’s central committee.