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Finance Minister Ng’andu aims to secure IMF deal before elections

February 8, 2021by Nicholas Kabaso
  • Ahead of talks with the International Monetary Fund this week, Zambian Finance Minister Bwalya Ng’andu on Friday stated that he expects to secure a loan that could underpin debt-restructuring talks with external creditors before elections in August. Ng’andu was quoted as saying, “we want a deal. There is absolutely no desire on our part that we delay things to election time, and we are hopeful that we’ll be able to reach some agreement with the IMF”.
  • Meanwhile, Zambia also on Friday requested a restructuring of its debt under a new framework supported by the G20. The Zambian Finance Ministry indicated that the debt treatment under the framework would be based on the debt sustainability analysis prepared in collaboration with the IMF. Moreover, all G20 and Paris Club creditors are expected to coordinate their engagement with Zambia via the common framework. Meanwhile, Minister Ng’andu reiterated his country’s commitment to transparency and equal treatment of all creditors during the restructuring process and that the application to benefit from the G20 common framework would hopefully reassure creditors.
  • While the news was positive Zambian Eurobonds were little-changed on Friday. The shorter-dated 2022 Eurobond edged marginally lower to 53.697% from a more than 2-month high of 53.935%. The Eurobond maturing in 2027 was meanwhile relatively consolidative, around 22%.
  • Shifting to the base metals complex, 3m LME Copper is on the front foot this morning in Asia with the metal adding some 1% on the day by 05:15 local time to $7990.00/tonne. Investors are betting that the US may pass the $1.9trn stimulus package as early as this month which should give economic growth a shot in the arm. 
  • There are still supply concerns in the copper market which is keeping the market in backwardation. The LME cash price for copper is at a $14.50/tonne premium over the 3m benchmark which is the widest spread since Sept 2020.
  • Stateside, Democrats in Congress pressed ahead with their efforts to pass the $1.9trln stimulus package as they approved a budget outline that will allow them to push through the stimulus package. Vice President Harris used her casting vote for the first time to clear the Senate hurdle. The Democrats are pushing hard for this bill, in order to offer the economy some support, with the latest non-farm payrolls data only strengthening the Democrats’ resolve to stimulate.
  • The recovery in the US labour market last month was far weaker than economists had expected, a sign that the second wave of the pandemic is still weighing heavily on the world’s largest economy. The US economy added 49k last month compared to analyst expectations for a more pronounced increased of 105k. Of more concern was the sharp downward revision to the December reading which was revised down from -140k to -227k. Private payrolls, which exclude government jobs, increased by just 6k in January.
  • The unemployment rate meanwhile fell from 6.7% in December to 6.3%, levels not seen since March last year. It is worth pointing out however that this came on the back of a decline in the labour force participation rate, suggesting that people are becoming discouraged by the lack of job opportunities. Average hourly earnings growth was unchanged from the previous month at 5.4% y/y.
  • Finally, focus will turn to the Senate and Trump’s impeachment trial. It looks like this effort will not secure a conviction and is dead before it even begins with the Democrats unlikely to secure enough votes to convict Trump. Once again, this is turning into a political spectacle which is in itself distracting from some deep-seated issues that need to be tackled. Worse still, is that Trump’s defence will seek to highlight the double standard applied by the Democrats who themselves supported the BLM movement through the riots and arguably enticed some of the bad behaviour. It is unlikely to work out well for either side.
  • Some disappointing labour data on Friday triggered investors to rethink their USD recovery views. If there was ever any doubt on the need for more stimulus, the latest data tilted the scales more squarely in favour of ongoing monetary support and galvanised Democrat efforts to pursue their $1.9trln stimulus package. Such stimulus efforts may be aimed at supporting GDP growth, but they have the effect of steadily debasing the underlying value of the USD through the promotion of massive twin deficits. Technically, the USD now looks set to lose more ground this week.
  • The Kwacha was once again on the defensive on Friday, with Thursday’s modest rebound short-lived. A bearish bias is set to remain in place as the country’s struggle to service its foreign debt remains a drag on sentiment.

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Nicholas Kabaso

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