AFRICA Confidential (AC) says Zambia’s de facto default on Eurobond bills is getting into the way in which of PF’s plan to create a slush fund for its 2021 election marketing campaign.
In its newest version, AC says, “the federal government’s request on 22 September to holders of its US $3 billion of Eurobonds for a six-month
suspension of repayments could have political repercussions in addition to the monetary ones which might be exercising the markets”.
“While state technocrats juggle with the figures, the ruling party fears that this sovereign default will hinder its plans to create a war chest for its August 2021 general election campaign. It hopes to fatten up a farm subsidy programme and skim from it to finance its political spending,” AC states partly. “The government has asked the International Monetary Fund for US $300 million under its Rapid Credit Facility to help mitigate the effects of the pandemic on the Zambian economy, according to our sources. But the lion’s share of those funds was intended to help finance a massive increase in the Farmer Input Support Programme (FISP), a subsidy to small and medium farmers, we hear.”
AC states that the ruling birthday celebration has issued inflated procurement contracts below FISP.
It additionally studies that Zambia won’t get any financing from the IMF.
“The PF has issued inflated procurement contracts under the FISP from which it hopes to divert funds, Africa Confidential understands. Although conditions under the RCF are much looser than conventional IMF finance, we understand Lusaka has next to no chance of getting the money,” AC states. “Lusaka was once already in unhealthy odour with the Fund over the dismissal of Central Bank of Zambia governor Denny Kalyalya (ACVol 61 No 17). Without that $300m the federal government will combat to fund the FISP. Not best are the additional farm inputs – already within the means of distribution –
being hired to influence small farmers to vote for the PF, however the contracts to offer the fertiliser and seeds have been inflated in order that the a success bidders may sit back parts of the contract worth to the PF. The surprisingly well timed arrival of inputs in huge amounts is already proving in style amongst farmers, we listen.”
The UK based totally e-newsletter states that ahead of govt’s request for reimbursement suspension, one creditor was once making plans to name within the sovereign ensure.
“Before Zambia asked to suspend bond repayments, Africa Confidential learned that at least one private creditor was planning to call in the sovereign guarantee after negotiations with the borrower, state electricity company Zesco, failed to secure overdue loan repayments. When the guarantee is called, the remaining balance of the entire loan becomes immediately payable, amounting to over $130m,” AC states. “Financial sources note that this one demand could cause many more loans to be called in their entirety because of cross-default clauses. Zambia’s extremely high debt exposure to private loans, especially to Chinese creditors, had long been noted before the current crisis over the Eurobonds arose (AC Vol 61 No 10).”
AC states that the rustic may best have rescued Zesco’s indebtedness by way of dipping into international reserves.
It statess that remaining yr the federal government expanded this yr’s FISP price range as a marketing campaign instrument.
“The only way Zambia could pay Zesco’s debt would be to dip into the already stretched foreign reserves – down to $1.43 billion in July. If it did not, then sovereign default would almost certainly follow. In late August the government expanded the FISP massively. FISP’s annual budget is usually about $50m but it has been increased to $500m, the sources say. The increase is because it is the last farming season before the election,” AC studies. “The FISP is designed to subsidise fertiliser and seed for small and medium farmers. Such programmes were strongly criticised by way of each home and
international mavens on public price range and on farming however they’ve proved extremely well-liked by electorate.”
The e-newsletter states that FISP has proved to be a vote winner for the ruling birthday celebration, particularly in rural spaces.
“Critics say inputs often arrive too late to be useful, and can create dependency, rather than encouraging farmers to ‘graduate’ from the programme through increased yields and higher profits. However, it is an important vote-winner in rural areas,” AC studies. “In late July, the government announced that it had allocated K1.7 billion ($85m) to the FISP. This is listed in its Excess Expenditure budget amendment that is expected to be formally presented to Parliament on Friday. Ministry insiders say that the figure of $500m the FISP is said to cost was reached in August.”
Quoting agriculture mavens, AC states that the rise within the FISP price stays unjustifiable.
It states that moistly PF aligned bidders were awarded such contracts through the years, together with a named fertilizer provider.
“The build up within the price of the FISP is so nice that mavens say no agricultural coverage or programme can justify it and issues to kickbacks that might be anticipated to waft to the ruling birthday celebration, along with supplying inputs for farmers. Tender paperwork from fresh
years noticed by way of Africa Confidential display bidders that have hyperlinks to the PF profitable contracts in spite of tendering at double the costs introduced by way of their competition,” AC states. “These companies have been accused of contributing to PF funds in return for the award of their government contracts in the local media on previous occasions, including contracts for agricultural inputs.”
On loans, AC says the rustic has nonetheless been borrowing not too long ago to pay for the FISP.
“But increasing the size of the FISP needs finance. While the finance ministry seeks concessional funding, it has been taking out new loans in the past few weeks to pay for the FISP, we understand, including K700 million ($35m) from Barclays. A substantial amount of the FISP’s $500m cost has been disbursed already,” the e-newsletter states. “Insiders say the government is under pressure to reduce costs, but contracts have already been signed and contractors have already spent money on procurement. It is unclear if cuts can be made at this stage. Central bank insiders say that the marked depreciation of the kwacha in the second half of August was as a result of the government having to buy dollars to pay the FISP supply contracts.”
AC studies that Zambia’s arrears on gas procurement have hit $600 million.
It states that the coronavirus pandemic has been utilized by govt to solicit price range for PF election campaigns.
“In a statement on the foreign exchange market on 15 September, the Bank of Zambia admitted that demand for foreign exchange had increased because of imports of agricultural inputs. Other reasons included payment of arrears to fuel suppliers. Africa Confidential has been told these arrears are now well above $600m,” AC states. “The commentary additionally described how debt carrier bills ‘presented the largest call on international reserves.’ Overall, many analysts learning Zambia’s public price range were
concluding that the worldwide pandemic is getting used as a tool to boost finance for the PF to struggle the following election. In mild of this, they doubt Zambia might be any higher positioned to pay its Eurobonds subsequent April, and are the use of COVID-19 simply to shop for time.”