Zambia’s public debt is growing unsustainably, making the economy of Africa’s No. 2 copper producer vulnerable to market swings and reversals in capital flows, the International Monetary Fund (IMF) said on Tuesday.
Publicly guaranteed debt increased from 36 percent of gross domestic product at the end of 2014 to 60 percent at end of 2016, it said.
“Public debt has been rising at an unsustainable pace and has crowded out lending to the private sector and increased the vulnerability of the economy,” the Fund said in a statement after its executive board concluded consultations with Lusaka.
“Directors expressed concern at the pace at which public debt, especially external debt, has increased and now put Zambia at high risk of debt distress. They commended the progress made in developing a medium-term debt strategy.”
The IMF said while the government was committed to reducing its fiscal deficit from 9 percent of GDP in 2016, its cash deficit would remain “elevated” as government arrears were cleared.
“Increased participation of foreign investors in the government securities market has eased the government’s financing constraint but has made the economy more vulnerable to swings in market sentiments and capital flow reversals.”
The IMF forecast growth of 4 percent in 2017, slower than the government’s forecast of 4.3 percent.
“Domestic risks to the outlook include delayed fiscal adjustment which would continue to crowd out credit to private sector and entrench an unsustainable debt situation, and unfavorable weather conditions which would affect hydro power generation and agricultural output,” the Fund said.
“External risks include tighter global financial conditions and volatility in the world copper price.”
Reporting by Ed Stoddard; Editing by Richard Balmforth