EURO BONDS TOO EXPENSIVE

Mon, 17 Oct 2016 12:52:52 +0000

GOVERNMENT must take advantage of the loans with 3 percent interest rates currently being offered by the Export-Import Bank (Eximbank) of China to finance socio-economic sectors, instead of using more expensive and restrictive finances,  says Private Sector Development Association (PSDA). PSDA chairperson Yusuf Dodia said unlike going for Eurobonds which had high interest rates of about 7 percent, the rates from Eximbank were much lower.

Mr Dodia said loans from the bank had a longer maturity period of between 15 and 20 years as compared to Eurobonds which could not go beyond 10 years. “The current international bonds being issued by Zambia will demand the yield rate above 7 percent, meaning that we will have to pay 7 percent for those bonds and they are likely to be 10-year bonds and not more than 10 years old which means that we will have to pay them back.

“But from the Eximbank of China we are likely to have the 3 percent which is much lower and the borrowing from the bank will be on a longer period between 15 and 20 years. So definitely going for the Eximbank of China financing facility is the way to go for Zambia,” he said.

He said the advantages of borrowing from the Eximbank included low interest rates and the ability to renegotiate the facility depending on how the economy progressed over time whereas with the Eurobond, there was no negotiation. “I think that as long as we are focussed and borrow the money for proper investment in social-economic areas, then we cannot go wrong,” he said.

But Economics Association of Zambia (EAZ) president Chrispin Mphuka said borrowing from the bank would depend on the conditionality which came with the loans. Dr. Mphuka, however, said at the moment Zambia did not have the capacity to contract more debt. “Does Zambia even have the capacity to contact more debts? I do not think it has because the cost will be just unmanageable,” he said. He also called for more than 30 percent fund allocation to developmental projects and social services such as health and education.

“This has been a long standing development problem in Zambia for a very long time, we have had very little to spend on projects and programmes and too much on wages. That is indeed a concern,” he said. Dr. Mphuka, however, said the 52 percent of the national Budget spent on civil service emoluments attracted human resource in social sectors.

‘‘It does not mean that when you spend on people and wages you are not doing development because there are sectors that are purely dependent on human resource like the health sector. “For you to attract expertise and to deliver good services, it is not just about building a hospital. It is about having the drugs and human personnel,” he said.