Zambia’s president Hichilema tackles debt mountain and empty treasury

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FT – Four years ago Hakainde Hichilema was being held in a Zambian prison accused of treason. Now he is aiming to save the southern African nation from financial ruin.

Nearly 100 days into his presidency after he beat the man who put him in jail, former leader Edgar Lungu, in a landslide election victory, Hichilema faces the task of turning round the resource-rich but near-bankrupt country. The president aims to reduce corruption and increase production of copper in a drive to win over bond investors and the IMF.

“If you saw what I’m seeing now, you would fall off your chair,” said Hichilema in an interview with the Financial Times in London on his way back from the COP26 climate talks, referring to what he alleged was rampant corruption in the previous administration. “The treasury we inherited was completely empty.”

Last year, Zambia, Africa’s second-biggest copper producer, became the continent’s first country to default since the start of Covid-19 after it skipped payments on US dollar eurobonds.

Out of the country’s nearly $15bn debt, including arrears, Hichilema’s government recently revealed that the share owed to Chinese creditors was $6bn, about double what was previously known. That has raised concerns that there could be more hidden debt and risks complicating negotiations with creditors and the IMF. The new government wants to sign a bailout with the fund by year-end.

Billions of dollars had been stolen through extravagant spending and kickbacks on construction projects, as well as corrupt fuel and fertiliser subsidy schemes, he said — accusations his predecessor denies. Hichilema’s government was seeking to recover stolen assets and clamp down on procurement practices that had in the past vastly inflated prices from roadworks to stationery supplies, he said.

Private creditors have sought transparency on the debt before they renegotiate payments; they had previously expressed concern that any concessions they make could be used to pay Chinese lenders.

Hichilema said refusing to negotiate was no longer tenable after the change of government. Private creditors, he said, “don’t have a choice. You cannot boycott and expect a solution especially if your teeth were already in the beef”, he added, referring to creditors who were willing to fund the Lungu administration. “You lent to a country that was distressed.”

Debt restructuring talks had already begun with both private creditors and China, he said after meeting eurobond creditors in London. “We will treat debt stockholders equitably to avoid cross-subsidisation,” he added, an assurance that money given up by one set of creditors would not be used to pay another.

Cash is tight after the Lungu administration spent heavily on subsidies in the run-up to August’s election, increasing the fiscal deficit to more than 10 per cent of gross domestic product. Hichilema presented a budget last month that is seen as the foundation for an IMF deal.

The budget aims to cut the deficit steeply to 6.7 per cent this year, eventually moving into surpluses. “This is part of the prudence measures we need ourselves. We don’t need the IMF to tell us to save money,” he said.

Part of his solution is to devolve spending to local authorities. “We’re taking money from a small clique of thieves in [the capital] Lusaka and sending it to the local communities,” he said. “Devolution, decentralisation has been talked about since independence. No government had the courage to do it, but we are doing it.”

Jimmy Maliseni of the Alliance for Community Action, an anti-corruption watchdog, said he agreed with devolution in principle. “Our concern is more about how it is activated,” he said.

Hichilema, whose victory in August came after five unsuccessful runs at the presidency, was charged with treason in 2017 after his motorcade overtook Lungu’s presidential convoy on the way to a ceremony. Security forces violently raided Hichilema’s house and imprisoned him for more than two months during which, he alleges, there was an attempt on his life.

His fiscal juggling act has been eased by a higher copper price, which has risen to a 10-year high and recently breached $10,000 a tonne. The government is targeting GDP growth of 3.5 per cent in 2021 after a contraction of about 3 per cent in 2020.

Hichilema has resisted calls for a windfall tax on mining. An ambitious target of nearly quadrupling annual copper production from the current 880,000 tonnes depended on reassuring investors that Zambia provided both an attractive and dependable business environment, he said.

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