Just six years after debt relief, Zambia is approaching international capital markets, with government promising more such borrowing in the future.
When Geoffrey Chongo's father died in 2001, he was just about to enter high school and Zambia was still struggling through its debt crisis.
His school fees and personal development suddenly at risk, Chongo's eyes were opened to a country that had spent a decade crashing through neoliberal reforms that required its leaders to privatise the economy, halt subsidies and drastically restructure the social sector.
Chongo is now Economic, Equity and Development Programme manager at the Jesuit Centre for Theological Reflection (JCTR), a Lusaka-based think tank.
Speaking to Think Africa Press, he says, "The macroeconomic statistics you've heard are real. We knew that when the rain season came, we would have cholera. It's because of poor sanitation and poor health services. Every year we would have cholera and it would kill hundreds and hundreds of people."
His uncles and brothers were able to secure employment, however, and ultimately his school fees were paid. Five years later, after a barrage of reforms prescribed by the International Monetary Fund (IMF) and World Bank, much of Zambia's $7 billion debt was cancelled.
Just six years on, Zambia started borrowing again, with the Patriotic Front (PF) government currently preparing to complete its first interest payment on last September's 10-year $750 million Eurobond.
Finance Minister Alexander Chikwanda says that these types of instruments are the future, yet debt-watchers like Chongo are concerned. They note a rising trend of taking on commercial loans, which stipulate fewer conditions than their concessional alternatives, but have higher interest rates.
At the same time, many critics accuse the government of an antiquated debt policy with insufficient parliamentary oversight. Others lament wasted potential in the tax system that could see development dollars raised without onerous terms or interest. While no one is warning of a new debt crisis yet, borrowing remains a loaded concept in a country so recently removed from Heavily Indebted Poor Country (HIPC) status.
An era of arrears
Since independence in 1964, Zambia has struggled to control its debt levels. Following the 1973 oil crisis and the 1975 plunge in copper prices the Kenneth Kaunda government fell into an ongoing balance-of-payments crisis.
In response, international creditors pressured Kaunda into making unpopular structural reforms, until he lashed out in 1987, breaking off relations with the IMF and refusing to pay more than 10% of GDP to debt servicing.
Creditors responded by penalising existing external debt and withholding aid. By the time Kaunda rebuilt his bridges with the IMF in 1989, debt to GDP ratio was 200% and the country was convulsed by hyperinflation and currency collapse.
In 1991, after 27 years under Kaunda, the country held multi-party elections and Movement for Multiparty Democracy (MMD) leader Frederick Chiluba surged to victory.
Chiluba was a good student for the IMF, privatising much of the economy and enacting other market reforms. By the mid-1990s, prospects had improved: GDP grew by 6.5%, inflation stabilised and manufacturing and non-traditional exports recovered, although education and healthcare indicators continued to decline.
But the end of the decade brought still more instability. The government-owned Zambian Consolidated Copper Mines haemorrhaged millions before it was partly privatised in 2000, whilst GDP growth shrank to 3.5%. Debt was tallied at $7.3 billion. In 2001, the year Zambia entered the HIPC program, it owed $606 million to debt servicing alone.
However, foreign governments began cancelling or restructuring some of the country's debt. At the Gleneagles Summit in 2005, the G8 cancelled $40 billion of debt from the world's poorest countries and, combined with completion of the HIPC program and a 100% write off of its IMF and World Bank loans accrued before 2005, Zambia's debt to GDP ratio fell to 9%.
Off to the bonds market
In September 2012, the PF government issued the country's first sovereign bond, joining a trend in sub-Saharan Africa initiated by Ghana in 2007. Mainly international investors have bought the government's bonds, receiving an interest rate of 5.625%. The bond was so popular it was oversubscribed by a factor of fifteen, revealing a trend of investor interest in emerging market debt.
Echoing his boss, Deputy Finance Minister Miles Sampa has reportedly said that government will continue to approach the international capital market, with a 45% debt to GDP ratio the intended ceiling.
Meanwhile, after the government's successful foray, a number of public agencies, from city councils to Zambia's Road Development Agency, announced their own intentions to enter the bonds market, bringing the issue of debt sustainability once again to the fore.
Ministry of Finance Permanent Secretary Felix Nkulukusa, speaking to Think Africa Press, says, "Our policy has always been that we should have sustainable debt and our preferred loan contraction is concessional loans. In situations where the concessional loans are not enough and we can go for commercial loans, they should be commercial loans on projects that have economic results attached."
In addition to concessional loans, Zambia for years benefited from budget support, which was transferred straight into the country's ledger books. But Zambia's fiscal ranking has changed dramatically in less than a decade. It is now considered a middle income country with a sovereign credit rating of B+.
Its success makes it less and less eligible for budget support and concessional debt, with the former registering just 5% in the 2013 budget, down from roughly 40% in the HIPC years, according to Nkulukusa. The absence of these inputs forces the government into the international markets if it wants to finance development.
The 2013 Budget Speech pledges Eurobond money to railways, roads, and healthcare infrastructure. Chongo approves of the allocations in theory, but worries about political interference when cash leaves the government coffers.
Better roadways to Zambia's remote waterfalls would benefit tourism, for example, whereas repaving a constituency undergoing one of the country's frequent by-elections might not.
Legal instruments to manage debt
"Our concern is the framework that governs borrowing," Chongo says. "We feel it's still weak. It doesn't guarantee oversight of Parliament. The executive minister of finance still dominates the process of contracting debt."
Zambia's Loans and Guarantees Authorization Act empowers the minister of finance to contract loans and negotiate terms and conditions. JCTR would like to see a debt management policy that brings loans before a parliamentary committee on a case-by-case basis.
They highlight a series of past loans that they say would have benefited from an oversight system, including a 2011 credit of $53 million from China for mobile hospital units that has been castigated for being ineffective and wasteful.
According to Nkulukusa, there is sufficient parliamentary oversight when Parliament approves a budget stipulating borrowing ceilings. Case-by-case oversight, he continues, is impossible in part because of the parliamentary sitting schedule. He cites the example of the Eurobond, when he says finance staff woke the minister up at 04:00am to report market rates.
"We don't have time to go to Parliament," he says, "because we have to make a decision in half an hour". Although the department is updating its debt management strategy, it will not, Nukulukusa says, include recommendations in line with JCTR's thinking.
Tax then spend
The NGO ActionAid occupies a separate corner of this debate, arguing that government should not be approaching international capital markets, whether it can sustain loans or not, until it maximises tax potential. Kryticous Patrick Nshindano, Economic Justice Program officer with the organisation, argues that "If we are going to look at financing for the economy, financing for a project, it has to be a more sustainable mode of financing, and the only sustainable mode we have is taxation.
Why is that we are avoiding something that we already have in our hands which we could utilise in preference of going to borrow?" Nkulukusa says Zambia isn't eager to tax the recent surge in mining investment until investors see returns. And reaping taxes from the informal sector, he adds, costs more money than it nets.
But ActionAid believes that alternative forms of taxation must be explored, considering debt servicing payments are money diverted from spending on health, education, and social security.
Nshindano isn't convinced by blooming economic indicators, noting that much of the productivity in the mining sector, which remains central to Zambia's economy, stems from foreign-owned capital. He says that "We do not have full control over that. So in that sense it is not prudent to base that on our GDP growth."
Zambia's current debt to GDP ratio is 27% of the country's $20 billion GDP, according to Nkulukusa, 10% of which comes from external lenders. He says 2014 projections of the debt burden are in development, and quashed fears of other public bodies issuing bonds, saying none of them have been rated and they do not have the technocratic capacity to engage the market.
Current debt levels are widely considered sustainable, at least in the short term, all the more so if government successfully rebases its GDP this October, a move observers say could increase GDP by 20%.
Still, there are those who are reticent. Speaking as a private economist and not a member of ActionAid, Nshindano stresses a prudent future based on a transparent borrowing regime with plenty of oversight.
He argues that "If we are able to put in place mechanisms that will ensure first of all there's accountability, there's transparency, there's the issue of monitoring the kind of money we are borrowing, and it's utilised for intended purposes, and this has to be capital projects, it is a welcome move."