Re-financing Eurobond using private equity 100% correct
Analysis: LUBINDA HABAZOKA
I AM very shocked that we are raising issues about loan refinancing when government has done it since independence.When government issues treasury bills (which are short term notes sold at a discount of face value) some of the proceeds normally go to paying of government debt.
I spoke extensively about the negatives of Eurobonds when government announced plans to issue the first one but everyone called me an alarmist, an opposition cadre or whatever.
What I simply wanted to advise then was that we were going to find ourselves in the situation we are today. If you have forgotten what I said about Eurobonds, please go to Google and look up in the archives of The Post Newspaper. You will even find an estimate of how much money I calculated we needed to set aside per day to repay interest on Eurobonds.
But typical of us, you all brushed me aside. When I mentioned that we needed to pay the principal amount at once, even economist professors called me to tell me to stop lying to the masses! I kept to my story and we have all lived to see what I said!!!
But one thing I don’t want to be part of is crying over spilled beans! I always want to be part of the solution and not just cry about issues.
What government has proposed to re-finance the Eurobond using private equity is 100 percent correct. Imagine how much tax you need to pay to raise US$3bn?
Imagine the damage to the economy if we defaulted on capital market debt (Eurobonds)? Some overzealous politicians even call for selling the Eurobond (which is actually re-financing) to Zambian citizens.
Do they understand the economic impact to the real sector of the economy if we withdrew US$3billion from households at once?
Please, if you don’t know economics, just sit aside and let experts deliberate. No wonder we want to engage stakeholders to ensure that Economics Association of Zambia becomes statutory.
No people should masquerade as economists and send false information to the market.
So, when the Zambian government gets equity from one company to repay the Eurobond, yes, we still remain with the debt but the debt that we now acquire will be completely paid off with time.
With Eurobonds, the principal still remains. The Turkish company is not a vulture fund. If it was a vulture fund, they could have bought our bonds on the capital markets (mind you we have no control on who buys our Eurobonds) then waited for us to default and then pounce on us.
But they came in to help out.
Mind you, experience has confirmed that terms on which re-financing is done are more favourable than the loan being re-financed. My advice to government is that they entice the Turkish government to also join the re-financing so that the deal also has a public touch. That way, you minimise misunderstandings during possible future debt restructuring.
So why did we start getting Eurobonds?
The idea of getting Eurobonds started under then Minister of Finance Situmbeko Musokotwane during the MMD government.
Even the International Monetary Fund (IMF) and World Bank advised us to get Eurobonds (that is why I no longer support an IMF package).
When we reached middle-income status, donors pulled out. They advised us to get a credit rating so that we could access funds on capital markets.
They said we are now mature enough to get that money. They knew their citizens don’t have instruments to invest in.
They knew our bonds would give better interest than theirs because of the risk factor. Imagine in some countries like Switzerland and Japan with negative lending rates? If you get five percent on a note in the USA for a domestic bond, then you are lucky.
Their plan is to ensure that when we fail to mobilise resources at once to repay the Eurobonds, so we go back and borrow more from them so that their citizens benefit!! This cycle can never end! The USA debt is accumulating exactly the same way. But they print dollars to repay the debt but we don’t have that luxury.
I hope you now see why I want home-grown solutions.
So colleagues don’t join me into the politics of why, why, why. Ours is to ensure we give sound economic policy direction.
The author is president of the Economics Association of Zambia.