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Thursday, December 2, 2021

Zambia’s new president resolves debt mountain and empty treasury issues

Four years ago, Hakainde Hichilema was detained in a Zambian prison and charged with treason. Now, his goal is to rescue this southern African country from the financial crisis.

After his overwhelming election victory defeated the former leader Edgar Lungu, the man who put him in prison, nearly 100 days after he took office as president, Hickelma faced a reversal of this resource-rich but on the verge of bankruptcy. Task of the country. The president aims to reduce corruption and increase copper production in order to win the support of bond investors and the International Monetary Fund.

“If you see what I see now, you will fall off your chair,” Hichilema said in an interview with the Financial Times in London after the conclusion of the COP26 climate negotiations, referring to what he called rampant corruption. The previous government. “The treasury we inherited is empty.”

Last year, Zambia, Africa’s second-largest copper producer, skipped payments on U.S. dollar and euro bonds, becoming the first country on the African continent to default since the beginning of Covid-19.

Of the country’s nearly US$15 billion in debt (including arrears), the Hichilema government recently revealed that the share owed to Chinese creditors is US$6 billion, roughly double the previously known amount. This has raised concerns that there may be more hidden debts and may complicate negotiations with creditors and the International Monetary Fund. The new government hopes to sign a rescue agreement with the fund before the end of the year.

He said billions of dollars were stolen due to extravagant spending and rebates on construction projects, as well as corrupt fuel and fertilizer subsidy programs-allegations that his predecessor denied. He said the Hichilema government is seeking to recover stolen assets and crack down on past purchases that have drastically increased prices from road works to stationery.

Mopani Copper Mine.

Mopani Copper Mine. Zambia acquired a majority stake in the mine from Glencore this year © Anders Pettersson/Getty

Private creditors seek debt transparency before renegotiating payments; they have previously expressed concern that any concessions they make may be used to pay Chinese lenders.

Hichilema said that after the change of government, the refusal to negotiate is no longer tenable. He said that private creditors “have no choice. You cannot resist and expect a solution, especially if your teeth are already in beef,” he added, referring to creditors willing to fund the Lungu government. “You lent it to a troubled country.”

After meeting with Eurobond creditors in London, he said that debt restructuring negotiations with private creditors and China have begun. “We will treat debt shareholders fairly to avoid cross-subsidies,” he added, guaranteeing that the funds given up by one group of creditors will not be used to pay another group of creditors.

The Lungu government invested heavily in subsidies before the August general election and increased the fiscal deficit to more than 10% of GDP. As a result, cash was tight. Hichilema submitted a budget last month, which is considered the basis of the IMF transaction.

The budget is aimed at reducing this year’s deficit to 6.7%, and ultimately achieving a surplus. “This is part of the prudential measures we ourselves need. We don’t need the International Monetary Fund to tell us to save money,” he said.

Part of his solution was to devolve expenditures to local authorities. “We take money from a small group of thieves [the capital] Lusaka and sent it to the local community,” he said. “Since independence, there have been talks about decentralization, decentralization. No government has the courage to do this, but we are doing it. “

Jimmy Maliseni of the Community Action Coalition, an anti-corruption watchdog, said he agreed in principle to decentralization. “We are more concerned about how it is activated,” he said.

Hichilema won in August after losing five consecutive terms as president. In 2017, he was charged with treason after his motorcade overtook Lungu’s presidential motorcade on the way to the ceremony. The security forces violently attacked Hichilema’s house and detained him for more than two months. He claimed that during this period, someone tried to murder him.

His financial juggling behavior has been eased by rising copper prices, which have risen to a 10-year high and recently exceeded $10,000 per ton. After shrinking by about 3% in 2020, the government’s goal is to increase GDP by 3.5% in 2021.

Hichilema rejected the call for a windfall tax on the mining industry. He said that the ambitious goal of increasing annual copper production by nearly four times from the current 880,000 tons depends on reassurance of investors that Zambia provides an attractive and reliable business environment.

But economist Trevor Simumba said that Hichilema is under pressure to get more income from the industry and provide more opportunities for Zambians.

“The government should also emphasize [mining groups] They need to make more contributions, especially considering the price of copper. The mines are making huge profits, and it is fair for Zambia to benefit from it,” Simonba said.

Although he had personal experience in the previous government, Hichilema said he would not commit a vendetta. “We want to restore the rule of law. But we don’t want to continue the bad behavior of our predecessor,” he said. “We don’t want revenge.”

Hichilema added that this does not mean that members of the Lungu government, including the former president, are immune from potential prosecution.

“We must not mistake this for impunity. We have zero tolerance for corruption,” he said. “No one should misunderstand what we are talking about. If someone needs to be prosecuted, they will be prosecuted.”

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