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zambia [Africa]March 21 (ANI): Zambia is facing an unsustainable debt load, with debt servicing leaving little room for capital formation, especially for infrastructure development, Africa Daily Digital reports.
While the country is working to implement reforms recommended by the World Bank, such as restoring fiscal and long-term debt sustainability, increasing farmers’ productivity and access to agricultural markets, ensuring access to energy and finance, and private sector development, it is Facing resource scarcity, making the country dependent and vulnerable to foreign debt.
Since then, the Zambian government has aggressively pursued additional infrastructure development through public-private partnership (PPP) projects. Zambia, like other debt-laden and cash-strapped African countries, is in dire need of funds to develop the infrastructure to connect its mineral-rich regions to major cities and ports, Africa Daily Digital reported.
Zambia has a heavy debt burden and its economic recovery is slow in the post-epidemic era. In this case, it is difficult to upgrade dilapidated roads connecting mining areas to export destinations due to lack of funds to build infrastructure, Africa Daily Digital reported.
China, which has a strong interest in the natural resources of African countries, took this opportunity to make African countries dependent on China and control the natural resources of African countries.
Although China’s Belt and Road Initiative (BRI) is helping many African countries build infrastructure, the end result is that these countries are saddled with debt, which in turn forces them to sell natural resources at lower prices to raise funds repay loan.
A consortium of Chinese companies recently won a bid to finance an upgrade of a 327-kilometer road linking Zambia’s capital Lusaka to Ndola in the country’s copperbelt province. The winning bid was Grand Ocean Investment, a consortium of three Chinese companies: AVIC International Engineering, Zhenjiang Communications Construction Group and China Railway Seventh Bureau. The consortium won a $650 million public-private partnership (PPP) contract to build the dual-lane road. The Chinese company signed a 25-year franchise agreement last month, with three years for construction and 22 years for operation and maintenance.
The road awarded to the Macro Ocean Investment consortium connects the Zambian capital to the mineral-rich Copperbelt province and the border with the Democratic Republic of Congo (DRC), carrying nearly all of the region’s road mineral exports to Tanzania, Africa Daily Digital reported.
However, critics of the Zambian government have raised concerns about the country’s reliance on China for infrastructure development. They worry that because China is Zambia’s largest single lender and the country already faces an unsustainable debt load, additional Chinese lending at near-commercial rates will exacerbate the problem. Its loans accounted for more than $6 billion of the country’s $16.8 billion total as of December 2021, a report in the digital edition of Africa Daily said.
Zambia’s debt burden and macroeconomic situation deteriorated rapidly in the wake of Covid-19. It was forced to seek assistance from the World Bank. On December 20, 2022, the multilateral financial institution announced the disbursement of the second tranche of support for Zambia’s Macroeconomic Stability, Growth and Competitiveness Program – a $100 million concessional credit, as part of a $275 million concessional development policy financing. Backed Zambia’s reforms in October to restore fiscal and debt sustainability and promote private sector-led growth.
Zambia’s new president, Hakaind Hichilkma, came to power in 2021 with a promise of 10% growth and a five-year plan to lift the country out of a $12.8 billion debt woes (estimated at the time).
Young people were a key component in his landslide victory over incumbent Edgar Lungu, motivated by unemployment, political disillusionment and economic hardship. But that has never been easy in the past, and even less so now.
Dealing with larger economic problems will require austerity measures that will place an additional financial burden on those already suffering from unemployment and inflation. The IMF conditionalities that Zambia has pledged to implement in return for aid from multilateral institutions are politically unpopular. The measures will include removing electricity and petrol price subsidies and restructuring civil servants’ payrolls, Africa Daily Digital reported.
In the current circumstances, many observers believe that seeking additional funding for infrastructure development from foreign countries (especially China) is sure to lead to disaster, since the latter provide funds at higher commercial rates. Many of them fear a repeat of what happened in Sri Lanka last year and in Pakistan this year because of the country’s reliance on foreign debt. If Zambia is not balanced and cautious in its infrastructure development, it could be forced into a default-like situation and a deepening economic crisis.
Zambia is in debt distress and urgently needs deep and comprehensive debt treatment under the terms of the Joint World Bank, according to a press release issued during the second tranche of the World Bank’s Macroeconomic Stability, Growth and Competitiveness Program – IMF Debt Sustainability Analysis (DSA), calling for $8.4 billion in debt relief over 2022-25, with additional debt relief until 2031.
In this context, Zambia must be cautious about any new external borrowing. Instead, it should seek help from its biggest creditor, China. In addition, exchanging external funds for natural resources is not conducive to the future development of the country.
Zambia has always wanted to develop and diversify its industry and move towards self-sufficiency. According to Africa Daily Digital, it is expected that if Zambia implements economic reforms recommended by multilateral financial institutions, it will have more opportunities to obtain preferential funds and attract more investment. (Arnie)
(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)
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