ECONOMICS ASSOCIATION OF ZAMBIA PRESS STATEMENT ON GRZ BOND ISSUE. Zambia has succeeded in issuing its second international sovereign bond of $1 billion. It is worthwhile to note that there is still significant investor confidence in the Zambian economy as demonstrated by the subscription and subsequent issuance of the $1 billion bond by the government. This comes at a higher price tag than the debut bond of $750 million, thus a yield of 8.625% compared the earlier 5.625% yield about two years ago. This high cost signifies increased indebtedness exhibited growing budget deficits, the increased likelihood of further US Fed tapering, weak Chinese and Eurozone growth, and the continued pressure on copper prices, amongst other factors. The bond comes as an alternative source to domestic borrowing, and has added a further debt-pricing benchmark based on the yields on Zambias sovereign debt. It also further increases Zambias scrutiny by the global investment community. This means that overall debt levels need to be managed, and clear benefits from targeted expenditure be defined. It is also worth ascertaining how much of the bond proceeds will be spent on domestic goods and services, which if higher will assist the Kwacha as demand will have increased. This bond issue calls for more fiscal discipline which has been a source of worry. There is need to ensure that unplanned and excess spending is contained while revenue mobilization efforts must be enhanced to levels that can sustain the debt repayments and finance the budget without too much pressure. The investment of the bond funds must target properly appraised projects of good economic returns to support the medium and long term repayment plan. The investment, whether it is infrastructure or specific services that may include support to small and medium enterprises, we advise that such must focus on providing genuine economic stimulus and increase the prospects for real economic diversification. We should be creating buffers and safety nets away from copper dependence which has proven to be Zambia’s pitfall going by recent history. While many will celebrate, there is a West African proverb that says that there is celebration at the contraction of a loan like during the birth of a baby; however there is sorrow and mourning at the time of repaying the loan, as at the death of a person. Let’s celebrate with wisdom by investing the funds in economically sound projects that will add value to the economy through an enabling business environment, wealth and jobs creation. These outcomes must be visible to all when we systematically address the infrastructure deficit, diversify the economy and reduce the high poverty levels. Signed: Isaac Ngoma PRESIDENT Wednesday, 9th April 2014
Posted on: Thu, 10 Apr 2014 09:01:25 +0000