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Zambia to miss a third Eurobond coupon payment

March 19, 2021by Nicholas Kabaso
  • In a press release yesterday, the Zambian Finance Ministry stated that Zambia’s public external debt remains at $12.74bn at the end of 2020. Note this compares with a total debt stock $11.97bn at the end of June. Click here for more https://www.mof.gov.zm/?wpfb_dl=347
  • The extent of Zambia’s fiscal woes is evidenced by the fact that the country is unable to pay yet another Eurobond coupon payment, which will mark the third Eurobond payment in the past few months that the country has skipped. The Finance Ministry said in an emailed statement that Zambia would skip a $20.2mn coupon payment due on March 20 for its $750mn Eurobond maturing in 2022.
  • The Finance Ministry said in the statement that “the dire economic situation experienced by the country has necessitated the suspension of debt servicing payments on its Eurobonds. In this regard, nothing has changed.” The Ministry noted that engagement with the International Monetary Fund (IMF) for extended credit facility continues. The Ministry added that once the IMF staff-level agreement is reached, the gov-ernment will look to finalize the debt sustainability analysis which will form the basis for its engagement with its creditors to find a lasting solu-tion.
  • While the Finance Ministry said in its press release yesterday that “the country continues to take the necessary steps to reach debt sustainabil-ity”, we are of the view that not enough has been done in order to rein in the country’s ballooning debt pile. As such, until we see concrete ev-idence that major fiscal and growth supportive reforms are being implemented, Zambia’s fiscal risks remain tilted firmly to the upside. It is however worth noting that we could see the country’s soaring debt pile stabilize if an IMF program is agreed upon as the country would be forced to adopt the IMF’s prudent fiscal management measures in order to gain access to the funding.
  • Base metals have shed ground this morning driven mainly by a stronger USD which is being underpinned by rising US Treasury yields. The benchmark 10yr US bond rose above the 1.75% mark for the first time in 14 months yesterday.
  • level since Dec 30 at 107 275 tonnes.
  • Fundamentally the outlook for base metals remains very positive. Analysts are suggesting that copper for example is heading into a super cycle with deficits seen for at least the next 2 years. Forecasts of $10 000/tonne by the end of 2021 really are conservative if you factor in the amount of copper that is going to be used as we embark on the decarbonisation of the world. The electronics needed for this process are go-ing to use massive amounts of the metal. 
  • On the geopolitical front, the Biden administration has clearly taken a page out of the Trump administration’s play book by adopting a tough stance against China, calling them out on behaviour it considered anti-democratic. At the start of initial talks with the Biden administration, ten-sions ran high as US diplomats highlighted the transgressions China had made and China fired back accusing of the US of struggling with its de-mocracy. It does not appear as though either side will head into these discussions with much concern about sensitivities around trade negotia-tions.
  • Where the Biden administration has differed sharply with Trump policies is on the issue of immigration. The US House of Representatives passed a bill on Thursday providing a pathway to immigrants otherwise known as dreamers, living illegally in the US after entering as children. This will be a contentious issue as it heads to a deeply divided Senate and all takes place against a growing crisis on the border with Mexico as more immigrants see the Biden administration as allowing them to enter.
  • Shifting focus to the FX markets, the Kwacha is expected to hold steady in the week ahead supported by month-end hard currency sales.
  •  Following the Fed’s latest decision and guidance which initially triggered weakness in the USD, the trade weighted USD has staged a recovery to place the USD index back into a familiar trading range. Although the bias continues to nudge higher in favour of further USD gains, there is a lack of underlying momentum at the moment. With no significant data to speak of scheduled for today, it is unlikely that the USD will gain much ground, but clearly there is reluctance to bet on a weaker USD while US Treasury yields continue their march higher.
  • Please click here to access the full Market Watch

Nicholas Kabaso

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