Discussions on debt restructuring underway between Zambia and the International Monetary Fund (IMF) will do little to disrupt the political agenda of President Edgar Lungu as he prepares for elections in August.
The talks, which started on 11 February, are due to end on 3 March. They are at least a sign that relations between Lusaka and the IMF are improving, but there is little prospect of meaningful results within the narrow time frame before the election, says Indigo Ellis, associate director at strategic advisory firm, Africa Matters in London.
“It is highly unlikely that an IMF support package will be forthcoming before the general election,” Ellis argues. “Despite pleas to the contrary, we continue to believe Lungu is incapable of selling the wide-scale reforms needed to the Patriotic Front (PF) and his electorate.”
“We should write off the pre-election period for an IMF support package – spending will balloon and budgeting is written off to secure an incumbent win.”
Zambia’s election winner will face a choice between relying on China and rebuilding Western market trust after its eurobond default in November 2020. The danger for the West is that Chinese loans will be the easier option.
China is the world’s largest consumer of copper and has invested in Zambia’s mines, which could be used as collateral to raise more cash.
“Until African countries like Zambia have increased access to capital markets, resource-backed loans remain the most viable way of raising capital,” says Ellis.
“States are highly unlikely to snub opaque Chinese lending unless solutions are found.”
Behind the curve
Irmgard Erasmus, senior financial economist at NKC African Economics in Cape Town, is optimistic that in the medium term, the IMF can act as a “policy anchor” – helping to restore credibility.
The central bank’s decision this month to raise the benchmark interest rate by 50 basis points to 8.5% suggests an openness to guidance from the IMF, she writes in a note.
Still, Erasmus writes, some of Zambia’s liabilities are only vaguely recorded, making it hard to guess at the country’s overall debt levels.
The race to transform
The IMF discussions come “too late in the political cycle” to deliver a deal before Zambia goes to the polls, says Nick Branson, director of Gondwana Risk in London. The talks are “on a road to nowhere”.
The IMF needs to conduct a comprehensive debt sustainability analysis to assess Zambia’s liabilities before any staff programme can start. This is an unpalatable prospect for Lungu ahead of the vote, given the risk of “uncomfortable truths about historic borrowing” being found, Branson says.
Continued delays will preclude Zambia from securing new concessional finance from the IMF before the fourth quarter of this year, he predicts.
The government is set to miss at least $175m of further interest payments in coming months, further weakening its hand in negotiations, adds Branson.
The best-case election result in terms of debt, argues Ellis, would be victory for Hakainde Hichilema and the opposition United Party for National Development (UPND). This would have the potential to create a fresh start for the IMF negotiations and a break with the economic overstretching of the PF, she says.
Rising consumer inflation presents the biggest threat to Lungu’s re-election, Ellis argues. But Lungu’s authoritarian streak suggests he will not easily give up power.
Lungu in 2017 had Hichilema imprisoned on treason charges which were widely seen as spurious. Ellis points to alleged vote-rigging at the last elections in 2016 as casting a shadow over the UPND’s chances.