ZAMBIA COMMITTED TO SOUND DEBT MANAGEMENT, SAYS FINANCE

UNCLAS LUSAKA 001029 SIPDIS TREASURY FOR TRINA RAND USDOC FOR 4510/ITA/IEP/ANESA/OA AF/S FOR MSHIELDS SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EFIN ECON ZA SUBJECT: ZAMBIA COMMITTED TO SOUND DEBT MANAGEMENT, SAYS FINANCE MINISTER Ref: Lusaka 155 Sensitive but unclassified-please protect accordingly. ¶1. (SBU) Summary: In the aftermath of high levels of bilateral and multilateral debt forgiveness, Zambia has maintained discipline in managing its external debt, according to the Minister of Finance and National Planning. Domestic debt and arrears continue to be fairly high, but government securities debt is being "restructured" through a move away from short-dated to longer-dated debt instruments. A Ministry official noted that despite political discussions and broad framework agreements about new loan packages from China and other countries, the Ministry has not finalized any new bilateral loans--and hopes to keep it this way. End Summary. ¶2. (SBU) Government media reported on September 5 statements made before Parliament by Minister of Finance and National Planning Ng'andu Magande on Zambia's external debt position. The Minister said that the country's external debt stock stood at USD 957.4 million at the end of 2006, and consisted of USD 562.4 million owed to multilateral creditors such as the World Bank, IMF, and African Development Bank, and USD 395 million owed to bilateral creditors. Ronald Simwinga, Director of Investments and Debt Management at the Ministry of Finance and National Planning explained to P/E Chief that the bilateral debt included over USD 200 million of debt owed to Brazil and Russia that is due to be forgiven, although agreements are not yet finalized, and the remaining amount is debt owed to Iraq, Kuwait and some old Chinese loans that were not part of China's debt forgiveness package. ¶3. (U) In his remarks before the National Assembly, Magande affirmed the Government of Zambia (GRZ)'s commitment to maintaining debt sustainability in the aftermath of significant debt forgiveness, and said the GRZ will seek concessional loans to support its development programs when grants and other financing are insufficient. Magande also announced that the GRZ was "up-to-date" on payments of principle and interest on outstanding international loans. ¶4. (U) The GRZ still faces high levels of domestic debt and related arrears, according to figures provided by Magande. Zambia's domestic debt stock was Kw 8.9 trillion at the end of 2006 (USD 2.25 billion). A significant part of the domestic debt, Kw 6.7 trillion (USD 1.675 billion),consists of government securities debt. Magande said that the GRZ planned to manage its government securities debt through "prudent cost and risk management." He added that the GRZ is restructuring its domestic debt by reducing short-dated instruments (90-day, 180-day and 270-day Treasury bills) and increasing long-term instruments--the GRZ introduced seven, 10 and 15 year bonds in August 2007. (Comment: These bonds will help the fledging mortgage market by providing banks and financial service providers a gauge for pricing mortgage products, but also have a serious downside--there is no secondary market at present, and it is likely that there will be illegal trading of these instruments. End comment.) The Minister also reported that at the end of 2006, the stock of domestic arrears was Kw 970.8 billion (USD 242.7 million). Magande noted that the GRZ was committed to reducing the level of arrears and had allocated budgetary resources in its Medium Term Expenditure Framework for 2007-2009 to pay arrears. ¶5. (SBU) Simwinga told P/E chief that in spite of numerous reports in the local media about framework agreements for expanded lending from China (Reftel) and new loan offers from other governments, no such loan deals had been finalized. He noted that most of the discussion was at the "political" level, and concrete agreements had yet to materialize. In addition, he said that Ministry officials are trying to make Zambian laws more stringent, so that entering into new bilateral loan agreements becomes much more difficult. Comment: The feedback regarding no new loans is encouraging, but despite best efforts by technocrats such as Simwinga, the politicians running the government may still make deals that generate new debt obligations. MARTINEZ