Zambia Central Bank Converts Unpaid State Loans Into Notes

LUSAKA(Capital Markers in Africa) – Zambia’s central bank and the government agreed that 4.4 billion kwacha ($310 million) the state owed the institution be converted into securities, Governor Denny Kalyalya said.

The state borrowed the money from the Bank of Zambia at a time when the country was emerging from an electricity crisis and economic strain, and as elections in 2016 approached. The loans peaked at 5.3 billion kwacha in July 2016 but were marked as zero in August this year on the bank’s balance sheet as a result of the deal.

“We had been in conversation with the government in terms of how they were going to make good on the indebtedness that they had to the central bank,” Kalyalya told reporters Wednesday in Lusaka, the capital. “This is a matter which has been of great concern. We reached an agreement where they converted that exposure for securities.”

Zambia has been struggling with rapidly escalating debt costs and repeated budget deficits. That’s put pressure on the government’s finances and the state owed suppliers more than 20 billion kwacha in arrears in June. The International Monetary Fund cut its 2019 economic growth forecast for Africa’s second-biggest copper producer again this week, to below 2%.

Zambia needs “a large, front-loaded and sustained fiscal adjustment” to reduce debt and arrears, the IMF said.

As a result of the conversion, the Bank of Zambia’s holdings of government bonds rose to 11.7 billion kwacha in October from 7.6 billion kwacha two months earlier. Kalyalya didn’t provide further details on the securities the bank swapped the debt for or when the conversion took place.

By law, the central bank can only lend to the government in “special circumstances,” and this debt is limited to 15% of the state’s ordinary revenue in the previous year.

Source: Bloomberg Business News