By KENNEDY MUPESENI –

THE Government should setup a Sinking Fund”, contain public expenditure and refinance one of the bonds to reduce risk of defaulting on the two Eurobonds procured in the last three years.
The Zambia Institute for Policy Analysis and Research (ZIPAR) has said the Government should consider setting up a Sinking Fund to help repay the two bonds in 2022 and 2024.
ZIPAR executive director Pamela Nakamba-Kabaso said this yesterday in a statement ahead of the unveiling of the institute’s report on Eurobonds today.
The Government borrowed US$750 million in 2012 and US$1 billion in 2014 from the international financial markets.
Each year, interest payments on existing Eurobonds will gobble up in excess of US$125 million.
Dr Nakamba-Kabaso said the Government should take action now to reduce the risk of defaulting on the two debts.
“ZIPAR also point to the challenge of having to repay the loans in full within a very tight two-year period between 2022-2024, when the respective ten-year bonds mature.Significant repayment risks will arise if there are adverse changes in the domestic or international market conditions before these dates,” she said.
She said that the government should reduce the need to borrow more by broadening the tax base and strengthening revenue collection.
It should consider setting up a Sinking Fund as putting aside funding each year for the two Eurobonds will insulate against future adverse macroeconomic conditions.
She said there was need for the Government to refinance the second Eurobond because it was obtained on relatively unfavourable terms and could be replaced with another bond with lower interest rates and longer maturity.
Dr Nakamba-Kabaso said the Government should also improve the existing institutional and legal bottlenecks in debt management including the finalisation of the Medium Term Debt Management Strategy.
There is need for the reorganisation of the debt office to enhance its risk portfolio monitoring and analysis.
In the same statement, ZIPAR Research Fellow, Shebo Nalishebo said that the Zambian Government’s use of Eurobonds had some advantages.
“The borrowed funds have mainly been invested in the energy and transport sectors. These are infrastructure projects that, it is hoped, will help increase economic growth, job creation and increase Government tax revenues in the future.
“However, Zambia also needs to manage the risks of greater borrowing. Tough decisions will need to be taken to ensure that Zambia manages the risks. These include measures to reduce the high fiscal deficit, setting up a Sinking Fund and looking at the case for refinancing the second Eurobond,” he said.