Zambia - Joint World Bank-IMF Debt Sustainability Analysis
An updated debt sustainability analysis (DSA) is prepared using the revised Low-income Countries Debt Sustainability Framework (LIC DSF) to assess Zambia’s current debt situation. Debt burden indicators have deteriorated considerably since the Octo...
| Main Authors: | , |
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/548351570791173632/Zambia-Joint-World-Bank-IMF-Debt-Sustainability-Analysis-August-2019 http://hdl.handle.net/10986/32572 |
| Summary: | An updated debt sustainability analysis
(DSA) is prepared using the revised Low-income Countries
Debt Sustainability Framework (LIC DSF) to assess Zambia’s
current debt situation. Debt burden indicators have
deteriorated considerably since the October 2017 DSA mainly
on account of large fiscal deficits as the authorities made
use of available financing to boost infrastructure spending,
weaker growth and exchange rate, and a worsened external
environment (terms of trade and financial conditions).
Rising debt service costs (both externally and domestically)
and a large pipeline of contracted and to-be-disbursed loans
place Zambia’s public debt on an unsustainable path under
current policies while budget expenditure arrears have
risen. Zambia’s debt-carrying capacity has also weakened
with its FX reserves’ import coverage declining from 4.7
months in 2015 to 1.7 months in May 2019. All four external
debt burden indicators breach their indicative thresholds,
three of them by large margins and throughout the
medium-term under the baseline scenario. Total public debt
is projected to increase somewhatin the near-term as, under
unchanged policies, fiscal deficits remain large, before
gradually declining as large debt-financed public projects
are completed and forced fiscal adjustment occurs given
financing constraints. As a frontier market, Zambia’s high
gross financing needs (peaking at 19 percent of GDP over the
next three years), combined with wide EMBI spreads (1,575
basis points on June 11, 2019) and high domestic borrowing
costs, expose it to significant market-financing risks.
Despite the challenging fiscal situation, Zambia has
remained current on all its debt obligations both domestic
and external, and has not experienced a debt distress event.
The authorities remain committed to prioritizing debt
service payments and have identified resources to continue
meeting debt obligations in the near-term. However, staff
assess the risk of external and overall public debt distress
for Zambia as very high at this juncture, and that a large
upfront and sustained fiscal adjustment is essential to
begin reducing debt vulnerabilities. |
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