No Deal in Zambia
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Welcome back to ‘The Vault’, where we bring you the latest updates in public policies across Africa. This week we are looking at the collapse of Zambia’s debt restructuring deal, the imminent asset in cash-strapped Kenya, and the NigerianSenate’s recently approved medium-term fiscal plan.
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No Deal in Zambia
After three years of negotiations, the Zambian debt restructuring deal hit a brick wall last week as China and France—co-chair of the Official Creditors Committee—rejected the government’s US$3 billion Eurobond debt restructuring deal agreed with private bondholders. What really happened?
- Back in October, the government reached an agreement with private bondholders to restructure about US$3 billion of public debt.
- The deal was rejected by the official creditors for lack of compatibility—chiefly due to differences in interest payments for private bondholders and official bondholders, a deviation from the G20 Common Framework.
- The G20 Common Framework is an initiative by the G20 countries and the Paris Club to help developing countries restructure their debt by involving private creditors in the negotiation for a unified debt payment plan.
- Zambia is currently facing a fiscal problem. The country defaulted on its debt in 2020. A high debt-service ratio, 16.7 percent, has dampened government spending needed to bolster the economy since the collapse of the economy during the 2019/20 global pandemic. In the last 3 years, critical sectors—health, education, and infrastructure—have lacked the necessary government stimulus to increase growth and reduce poverty.
This development has several implications. First, it threatens the Zambia government’s current economic and fiscal plan. As pointed out by the Minister of Finance:
“During restructuring, we are experiencing vastly constrained fiscal space. We cannot attract vital foreign direct investment. We have no access to capital markets.”
Additionally, this setback jeopardizes the progress of the ongoing economic reform plans required by the IMF for the US$1.3 billion credit facility agreed upon in September 2022.
Beyond Zambia, this development undermines the purpose of the G20 Common Framework, especially when many countries in the region—Ghana, Kenya, Ethiopia, and Egypt— are struggling with unsustainable debt burdens. Since it’s launched in 2020, it has been all talk and no success.
Asset Sales in Cash-Strapped Kenya
It’s no secret that President Ruto has been battling a severe money crunch since taking the reins of office in September 2022.
A few months ago, Ruto passed his first budget with an estimated fiscal deficit of KES718 billion (US$4.6 billion). As noted in our previous article—here—Ruto’s one year in office has been marked by unfulfilled campaign promises and high cost of living, mainly caused by increased taxes and the removal of subsidies on fuel and electricity. While Ruto hoped to free up resources for public investment and for his “Bottom-up Economic Transformation Agenda”, these policies have negatively affected many low and middle-income households.
This past week, the government announced plans to sell 35 state companies. There are several merits to this new strategy besides raising money for the coffers. First, on the cost side, this will slimmer the cost of governance. Secondly, it would help avoid pilling up debt finance which is already at unsustainable levels—67.4 percent of GDP. Additionally, this strategy will help avert further tax increases which have angered the public and caused several months of protests that halted economic activity across the country.
There is more goodnews for Kenyans, last week the government also announced a deal with the World Bank that will guarantee Ruto US$12 billion in support over the next three years.
Now that Ruto has finally passed his first budget and is getting the cash he needs; we will keep an eye on what policies are implemented over the coming months. To this end, check out our policy repository on our websites here to stay updated.
Data Vault: What’s in The Nigerian Mid-term Fiscal Plan?
Last week, the Nigerian senate approved the government’s medium-term expenditure plan for the next three years. This plan will shape the economic performance of President Bola Tinubu over the next three years. Specifically, the plan ambitiously projects a 54 percent increase in Revenue for the 2024 fiscal year—N16.9 trillion in 2024 compared to N11 trillion in 2023—59 percent to come from non-oil sources. Expenditure is also estimated to increase by 14.8 percent for next year (N26 trillion from N22.6 trillion in this year). See other key macroeconomic projections below.
Read a full copy of the MTEF here.
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What we are tracking
We’re also tracking the latest current events in the news, and how they may affect the decisions of policymakers. Below are some of the latest developments.
Somalia| Somalia has joined the Community of East African States (EAC). Last Friday, the President of the East African Community (EAC), Évariste Ndayishimiye, who is also the Head of State of Burundi, announced that Somalia has been officially admitted to join the other seven Eastern African countries in the regional organization. This marks a significant step in the expansion of the bloc in East Africa.
Liberia | The World Bank has suspended Liberia’s access to loans over failure to meet its debt payment obligations. The country’s ability to withdraw from the Disbursing Loans and specific Trust Fund grants is temporarily suspended until the debt to the Bank is paid off. This move was made after Liberia defaulted loan repayments by 60 days under the outgoing administration led by President George Weah. The suspension will significantly affect Liberia’s ability to secure loans from other lenders and the incoming administration will need to negotiate repayment terms with the World Bank.
Kenya | The Kenyan government has announced its plan to privatize 35 state-owned companies. This decision comes just one month after President Ruto signed a law that facilitates the privatization of public companies. The government aims to reform these state-owned companies, which are currently lucrative but stifled by government bureaucracy, as stated by the president.
Mali | Mali’s government has reached an official agreement with Russia to establish a state-of-the-art gold refinery project in the capital city, Bamako. This four-year deal entails the construction of a refinery that will have the capacity to process an impressive 200 tonnes of gold annually.
Want more?
Check some of our recently published insights, which provide you with deeper analysis and context at the intersection of public policy and current events.
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President Muhammadu Buhari established a Conditional Cash Transfer (CCT) programme as part of the broad 2016 Social Intervention Scheme, part of a key campaign promise to reduce poverty through robust social intervention. The Minister of Humanitarian Affairs emphasized the success of the CCT stating in a press brief, that since 2015, over 1 million households (7 million persons) have benefited. However, looking at the overall data, the number of Nigerians in poverty has increased, from 40.1 percent in 2015 to 45 percent in 2023. This data suggests poor households are no better off now compared to 2015. In this article, we discuss some issues and challenges for this. Read more…
How Has Kenyan President William Ruto Fared Six Months into His Tenure?
Elected on the promise of a “Bottom-Up Economic Transformation,” President Ruto has taken several early actions in line with his pledges of economic transformation. He recently promised a KES50 billion annual commitment to the Hustlers Fund initiative —a financial inclusion fund to provide affordable credit to businesses, aimed at boosting economic growth and employment. He has also kept his promise on the housing and settlement plan by launching several affordable housing projects across the country. Read more…
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