Misunderstanding Eurobond economics
ONE of the biggest misunderstandings is that we need to find $750 million next year given that the 2012 $750m Eurobond is falling due. This is a complete misunderstanding of the reading of what economists call the Balance of Payments Accounts.
Remember that in any given year, we receive foreign exchange (US dollars) from all sorts of things: traditional exports (copper, cobalt etc), non-traditional exports (agric, etc), portfolio investment inflows, foreign direct investment (FDI) inflows, remittances, etc. From these inflows, we need to net-off outflows (paying for imports, portfolio outflows, external debt service, etc…).
In 2019 (the latest year for which we have these projections), the IMF made projections on what one could reasonably expect the difference of forex inflows and outflows to be over the period 2022 to 2024 (even taking into account the payment of the $750m and $1 billion Eurobonds due in 2022 and 2024).
What were their projections?
Well, they found that outflows were expected to be greater than inflows by about an average of $100m per year. In other words, all things considered, our forex shortfall was only $100m on average per year over the period 2022 to 2024.
And they based their copper price projections on $5, 000-$6, 000 per tonne, the price then prevailing. It’s now around the $9, 000/tonne and expected to be there for a while and might even possibly rise even higher in the near future.
Also, I imagine that they projected portfolio and FDI inflows based on investors’ perceptions of the then Edgar Lungu government.
I am sure foreign investors have now positively updated their perceptions of Zambia as an investment destination under the Hakainde Hichilema administration.
Therefore, we should reasonably expect more inflows from this channel (again I ask that the President and the Minister of Finance prepare a sensible economic recovery plan and put in place a solid public relations strategy to communicate their plan to the outside world to attract even more inflows).
Given these new developments, I suspect that the shortfall is likely to be lower than what was projected in 2019 (Ministry of Finance needs to prepare their own updated projections soon to guide this debate – we can’t leave this business of projections to the IMF, the very institution with a vested interest in lending to us!).
Given this scenario, are these the kinds of forex shortfalls that require us to run begging cup-in-hand to the IMF? Remember that we are 57 years old this October.