Debt Management Should Be Priority for Zambia, Kalyalya Says

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  • Interest rates will rise significantly if debt isn’t managed
  • IMF ruled out meaningful talks on aid deal at annual meetings

Zambia must prioritize its debt management to protect the economy from a surge in borrowing costs, central bank Governor Denny Kalyalya said.

“That’s one area that we really need to put a hand on so that it doesn’t overheat the economy,” Kalyalya said in an interview Wednesday in Washington. “If that happens then all these interest rates we’re talking about will go up very significantly.”

Ballooning debt levels are key to negotiations with the International Monetary Fund. Earlier this week the Washington-based lender ruled out any substantive talks on a proposed $1.3-billion aid program during its annual meetings and said it saw a high risk of distress due to the pace at which Zambia’s public liabilities are rising.

Africa’s second-largest copper producer, which is counting on a rebound in the metal’s price in international markets for an improvement in its fiscal and growth outlook, had hoped to resume talks on the planned program this month and reach a deal by the end of the year. Negotiations for an economic-aid package have been underway since April.

“Obviously, you don’t expect the debt to be reduced tomorrow,” Kalyalya said. “What is important is to have a path that brings you to more sustainable levels.”

Zambia’s external debt rose to $7.6 billion by Aug. 31 from $2 billion at the end of 2011 as the government tapped the Eurobond market for $3 billion and borrowed money mainly from China to finance roads. In an attempt to rein in external borrowing, the government decided to triple its borrowing from the domestic market to 11.2 billion kwacha ($1.2 billion) next year.

Yields on the nation’s $1 billion Eurobond due 2024 have risen 14 basis points since the start of last month. It fell nine basis points to 7.06 percent by 4:58 p.m. in Lusaka on Thursday. The kwacha weakened 0.1 percent to 9.66 per dollar.

“There is quite a lot of pressure on the domestic side because the external side -- the borrowing -- that window is kind of closed,” Kalyalya said. “If we maintain within the budget frame, we should be able to manage with reasonable interest rates.”

— With assistance by Taonga Clifford Mitimingi

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