Zambia’s hidden debt crisis part 2


By Nevers Sekwila Mumba, 31st July 2017

On 28th July 2017, we released the preliminary findings of our research into what the true debt position of Zambia is. We have received lots of useful feedback after many Zambians interrogated the figures we presented. As we stated in our original writeup, we did not claim perfection and we acknowledged that there could be gaps in our findings, factors we overlooked or information we left out. This second article aims to address these points.

We have uncovered more loans than we listed previously. However, rather than list all the loans as we did before, we decided to take a different approach. We have taken the total of all new loans by year from the Annual Reports on the Ministry of Finance (MOF) website. We have then listed and totaled up the loans for 2017 (thus far) and added to the MOF figures. The amounts from MOF include the $3 billion of Eurobonds which we had erroneously left out of our earlier analysis.

Due to the change of government in 2011, we have left out any new loans contracted in that year because the Patriotic Front (PF) government only ruled for the last 3 months of the year and in any case, new loans in 2011 only amounted to $504.8 million, half of which was for the Mongu-Kalabo Road as per MOF report. We took the final external debt figure for 2011 as at 31st December 2011 and added it to the new loans thereafter. The 2011 external debt, as reported by the IMF 2015 Debt Sustainability report for Zambia, was $3.5 billion (15% of $23.5 billion GDP in 2011).

2012: $1.31 billion
2013: $1.25 billion
2014: $1.58 billion
2015: $2.21 billion
2016: $3.46 billion
2017: $4.20 billion (estimated; breakdown further below)
2011: $3.50 billion (cumulative external debt stock from previous government)
EXTERNAL DEBT TOTAL: $17.5 billion (2017)

MOF Annual Reports show total debt servicing of the principal amount at only $688 million between 2012 and 2016, with $748 million in interest payments (see below). MOF reports show $9.8 billion in new additional loans between 2012 and 2016 (see above), but show the debt stock in 2016 at only $6.9 billion (up from their own questionable figure of $2.0 billion in 2011), meaning that external debt increased by only $4.9 billion. This seems very suspicious because $2.0 billion plus $9.8 billion of new debts less $0.688 billion in debt servicing should produce $11.1 billion at year end 2016. There is a massive $4.2 billion discrepancy between $11.1 billion and $6.9 billion that needs explaining by the Finance Minister, not to mention that their external debt figure of $2.0 billion in 2011 is different from the IMF/World bank figure of $3.5 billion.

2012 | $228.9m | $67.7m | $296.6m
2013 | $97.7m | $63.1m | $160.8m
2014 | $55.3m | $130.0m | $185.3m
2015 | $136.8m | $172.6m | $309.3m
2016 | $169.0m | $315.0m | $484.0m
2017 | $200.0m* | $400.0m* | $600.0m* (*estimated)
SUM | $887.7m | $1,148.3m | $2,036.0m

NET EXTERNAL DEBT 2017: $16.6 billion
($17.5 billion less $0.888 billion principal amount debt servicing)

The Finance Minister stated in Parliament that the domestic debt stock stood at K38.6 billion and domestic arrears were K17.4 billion. Adding these two figures produces K56.0 billion. The exchange rate in May 2017 was K9.30 per Dollar. Therefore, the K56.0 billion local debt based on government securities plus arrears as of May 2017 is at least $6.0 billion. In December 2016, Mr Mutati revealed that K8.7 billion was owed to local contractors which is $840 million using the exchange rate at the time (K10.36/$1.00).
LOCAL DEBTS TOTAL: $6.84 billion

NET DEBT GRAND TOTAL: $23.4 billion ($16.6 billion + $6.8 billion)

Our earlier article did not mention interest on the loans because we wanted to simplify things and deal with the interest in a follow up article. Debt repayments are estimated at $2.0 billion from 2012 to 2017 of which $1.15 billion (57.5%) is interest. Many of the loans are provided by China and are long term (15-20 years) with interest rates as low as 3% (eg China Exim Bank). World Bank loans are among the cheapest at 0.5% and also long term. The Eurobond loans are in the region of 5%-10% while other loans are interest free.

It is a huge challenge to estimate the total interest to be paid on the net external debt of $16.6 billion, especially since the interest rates vary so much from loan to loan. Data on the rates for each of the loans is difficult to find. A very conservative interest rate of 3% per annum over 10 years adds $2.6 billion in interest, 15 years adds $4.0 billion and 20 years $5.5 billion. This assumes all payments are made on time. Delays in repayments attract penalties which can quickly balloon the debt considerably. Matters are further complicated by contracting new loans in future, refinancing, and debt write-offs. What is certainly clear is that interest will add billions to the $23.4 billion net debt.

We have endeavoured to cite from a wide variety of sources (see list below). This has included official sources like Ministry of Finance, state media and other reputable sources such as Reuters and World Bank. We hope to remove any accusations of bias and questions on reliability of information.

It did occur to us that there may be secret loans potentially running into hundreds of millions of Dollars for the defence forces and intelligence services. We shall not speculate on these.

Some have made the argument that the loans will spur economic growth and therefore going to make repayments easier and faster. This is certainly partly true, especially loans meant for business and key infrastructure like roads and railways. However, many loans are used for political and not economic reasons. For example, roads are often built in areas where the economic activity cannot justify them. They never pay for themselves and are subsidized from taxes.

Calculating whether the positive effects of the loans will lead to pay back in good time is not easy. Some of them are for things like health, sanitation and environmental matters which do not directly generate revenue. We believe that the Zambian government has gotten too many loans too quickly which shall lead to another debt crisis further down the road. We shall discuss this in more detail in due course.

Others say that the government in its tabulation of the $7.2 billion figure uses actual disbursements received for the external debt stock figure. Such a method of computing the debt is not only disingenuous, it still does not change the total amount signed for, and for which interest has to be paid. After you sign for a loan, it becomes a liability, unless the lender fails to remit funds. In any case, loan disbursements are normally given fairly quickly within the same year of signing the agreements so that the lender begins earning interest. It is not in the interest of lenders to delay disbursements.

The following is the list of the major loans obtained in 2017 that make up the $4.2 billion figure above. These are the ones we were able to trace.

1. Lusaka de-congestion: $286 million
2. Communication towers: $280 million
3. Chipata-Serenje railway line: $2.3 billion
4. 2,000 Military Houses: $157 million
5. International Development Assistance programme: $600 million
6. Rural roads project (World Bank): $200 million
7. Digital migration: $273 million
8. Fish industry: $50 million
9. Rural energy (World Bank): $26.5 million
10. Legume-based farming: $30 million
2017 LOANS TOTAL: $4.2 billion

316km Lusaka-Ndola Dual carriageway: $500 million
70km Ndola-Mufulira road: $80 million
Miscellaneous infrastructure development projects: $8 billion (already applied for)

POTENTIAL FINAL NET DEBT: $31.9 billion in 2017 ($23.4 billion + $8.5 billion)


We are grateful that some people correctly pointed out to us that the Kwacha was rebased in January 2013. Two of the figures we quoted in our earlier writeup for the period 2011 to 2012 were converted from the Kwacha equivalent into US Dollars. These were the poverty reduction loans that were K65.5 billion and K32 billion. We reported the US Dollar equivalent as $13.5 billion and $6.7 billion. We have found that the US Dollar equivalent of the two figures were incorrect because the Kwacha amounts were in the old currency which was 1,000 times greater than the rebased Kwacha. The correct amounts are $13.2 million and $6.7 million at the exchange rate of K4,850 and K4,770 per US Dollar respectively.


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