The government of Zambia has made a critical decision to cancel projects said to be worth $2 billion and financed by commercial loans.
The move is to avoid the risk of accumulating more non-concessional debt, as the African nation already struggles with quite a few.
In 2020, Zambia became the first nation to default in the COVID-19 era. At the end of 2021, its external debt was $17.27 billion, of which China held $5.78 billion, and it is in talks with creditors and the International Monetary Fund (IMF) to get out of this debt hole.
The Treasury Department’s medium-term budget released on Saturday showed that the nation is undergoing an economic overturn that will help reduce costs and increase productivity.
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However, the budget, as observed by local media, didn’t give much detail as to the process involved in the cancellation.
Currently, Zambia’s economic growth is expected to slow to 3.1% in 2022 from 3.6% in 2021, mainly due to lower expected output from the agricultural sector.
The budget showed that the economy of Africa’s secon-largest copper producer is expected to grow by 4%, 4.1%, and 4.4% in 2023, 2024, and 2025 respectively.
According to a spokesperson from the Treasury department of Zambia, the decision to scrap the projects is part of a broader debt restructuring process. She added that she expects bilateral creditors to provide adequate funding pledges for approval of an IMF program under discussion.
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Zambia’s government is also in the process of amending the law to improve parliamentary oversight of loans.
So far, its focus is on the medium-term macro targets for 2023-2025 also includes keeping inflation low in the single digits, averaging 9.2% in 2023, 8.2% in 2024, and 7.3% in 2025.