A resounding victory for Zambia’s elected President Hakande Hichilema could help him deliver on his promise to secure a much-needed deal with the International Monetary Fund to reduce debt and boost economic growth.
Zambian’s eurobonds and currency rallied on Monday, when Hichilema defeated Edgar Lungu by nearly 1 million votes with nearly 60% support. Ray Jian, emerging markets portfolio manager at Amundi Asset Management, said the massive margin policy would make it easier to change, which has an overweight position in Zambian debt.
Hichilema, 59, who says he can achieve economic growth of more than 10% within five years, has held talks with the IMF to secure the money needed to ease the country’s “unstable debt level”. resolved to accelerate. Investors including Amundi and M&G Investments see the new leader’s proposed policies as enabling the deal.
What investors and economists think about Hichilema’s plan:
Gregory Smith, emerging market strategist at M&G Investments in London:
- “An IMF program is on the cards for Zambia after the inauguration. Once an economic plan is in place IMF talks could eventually kick back into gear. An IMF program is possible before the April 2022 meetings.”
- “However, given the size of the burden and the many different creditors, debt restructuring remains a major challenge. The task will not be easy, but the new government should be able to achieve it by the end of 2022.
- “Zambia has lacked an adequate strategy for its investment and economic development over the past decade. Its debt crisis has its roots in an investment crisis where projects were inadequately reviewed and given poor priority. The coming decade will be so much better if investments are managed well and the new leadership can stamp out corruption.
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Gian, a London-based portfolio manager at Amundi:
- “This will be our base case, with the new Zambian government securing the IMF deal by spring next year at the latest.”
- New government’s “strong mandate for change, makes policy change easier; Hichilema’s economy platform is based on private sector-led liberal market reform, which bodes well for the IMF program; Lungu’s much more involved with the IMF” But none came into effect, Hichilema’s government doesn’t have this trust deficit with funds.”
- “We believe that the treatment of bond defaults is one of Hichilema’s priorities, as the more market-based Zambian economy needs the bond market to partially finance its reform and development programme.”
- “We believe that major bilateral lenders such as China are also likely to play a constructive role as it is in their best interest to see Zambia improve and achieve sustainable development in the future.”
Alex Montana, Africa analyst at risk intelligence company Verisk Maplecroft:
- “Hichilema’s first priority as president will be to implement economic reforms and work towards an agreement with the IMF for financial support, which has become more likely after his victory.”
- “An IMF bailout would facilitate the restructuring of Zambia’s debt and increase the likelihood of it being accepted into other debt assistance programs. Zambia’s commitment to improving its public finances will be judged on the outcome of negotiations with the IMF.”
