By JAMES MUYANWA –

ZAMBIA’s latest Eurobond debt has been contracted at great cost and can only be beneficial if invested in viable projects, the Zambia Institute for Policy Analysis and Research (ZIPAR) has said.
ZIPAR says the US$1.25-billion Eurobond issued by Government will increase total interest payments on the three bonds taken out so far from about US$125 million a year to over US$240 million, or K1.8 billion.
The institute said this yesterday in a statement by acting executive director, Caesar Cheelo, on the latest Eurobond which the government issued last week.
ZIPAR says the Government should formulate credible spending plans, which should be publicly announced for transparency and accountability.
This should have clear and strengthened project selection processes that prioritise capital expenditure on viable, high economic return projects.
There is equally need to improve tax administration and should in particular tap into new high-economic-return projects.
“It will also be prudent for government to rationalise spending on non-priority areas. Government should also avoid the temptation and pressure for fiscal spillages as the borrowing has come at a time when there are so many headwinds and when we are about to enter an election year,” ZIPAR says.
ZIPAR observes that the latest Eurobond has been issued against a backdrop of myriad economic difficulties the country is experiencing.
“The US$1.25 billion Eurobond comes in the wake of: a depreciating Kwacha …; a much higher-than-budgeted fiscal deficit; a widening trade deficit reflecting falling export revenues due to lower copper prices; challenges with the mining tax regime; and declining non-traditional
exports.
“Other challenges include 30-50 per cent drop in electricity supply, which are likely to reduce production and productivity, and ultimately dampen growth even further than the 5.8 per cent revised economic growth for 2015,” ZIPAR says.
Hence, the third Eurobond, at an annual interest rate of 9.37 per cent, is more expensive than the 2012 and 2014 ones with interest rates, 5.37 per cent and 8.5 per cent, respectively.
Zambia will pay US$117.2 million annually in interest until 2025 on this new Eurobond alone while between now and 2022, interest payments for the three Eurobonds will increase from US$125 million to over US$240 million annually.
While the third Eurobond should provide some relief to the weakening Kwacha, and is also expected to reduce the reliance on short-term expensive domestic debt, ZIPAR warns that higher interest payments on Eurobonds are likely to crowd out public investment and social spending.
“For example, interests on all external debt – that is debt owed by the Zambian government to international lenders which include Eurobonds alongside other borrowing – were budgeted at K2.4 billion in 2015, but this will rise to about K3.8 billion.
“Coupled with domestic interest payments currently budgeted at K2.9 billion, total interest payments on public debt may rise to over K6 billion from 2016.This is higher than the K4.5 billion allocation to the health sector and the K5.6 billion allocation for roads construction in the 2015 budget,” it says.