Zambia’s President Lungu struggles to pay civil servants
With the IMF announcing growth under 3% and rising inflation, the Zambian government has turned to softer targets in its bid to raise cash.
President Edgar Lungu in March had to raid the state pension fund to pay public sector workers, reports Africa Confidential [paywall].
- “While the ruling Patriotic Front continues to deny that its debt burden poses any problem, alarm has been growing in financial circles. Standard Bank, which trades as Stanbic in Zambia and is a significant lender, has warned in a report titled ‘Déjà vu’ that the government is facing an imminent liquidity crisis”.
Foreign reserves are a concern, with the government beginning, “the year with a little over US$1.5 billion in reserves, only slightly more than the $1.4bn of budgeted debt repayments”.
- Last year Zambia paid almost all its foreign debt with the reserves, nearly $1bn.
- Investors are worrying that there doesn’t appear to be a plan to turn this around, and the government appears to be underestimating the cost of debt service
Local banks, meanwhile, are steering clear of lending to the government – hence the raid on the pension pots. They are not alone in distrusting government promises to pay:
- South Korean contractor Daewoo has downed tools on the Botswana – Zambia bridge project.
- Chinese road contractors have halted work.
Privatisation and other asset sales may now be Zambia’s only option.
What of Chinese debt?
Despite the media attention surrounding Chinese lending to Zambia, little is being done to restructure debts to Beijing.
Senior civil servants told Africa Confidential that “some of the talks with China resulted from Exim Bank sending a delegation to Zambia two months ago to demand overdue payments to Chinese contractors.
- “Insiders say that the 15% down-payments Zambia was supposed to contribute to the capital for Chinese projects were borrowed but not always paid in full to contractors as intended”.
What’s next: The political backlash for failing to pay civil servants on time may be “politically disastrous for the ruling Patriotic Front party, and there seems to be no solution on the horizon”.