This debt sustainability analysis was conducted using the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (LIC-DSF) that was approved in 2017.
ZESCO and other SOEs’ guaranteed debt has always been included in DSAs and is now also part of the authorities’ officially published debt metric. ZESCO’s contingent risks to the sovereign relate to its persistent and large cash deficits. Several reform options are under consideration for improving ZESCO’s financial viability (tariff increases, a cost of service study, and renegotiation of PPAs), and its inclusion in the debt perimeter will be reassessed in future DSA updates.
As historical series of ZESCO’s liabilities and cash flows are not available, their inclusion (starting in 2018) in the DSA result in a timeseries break between 2017 and 2018.
The Zambian authorities are in the process of clearing some de minimis arrears recently reported to the Paris Club by Belgium. The authorities’ were confirming de minimis sovereign arrears reported to the Paris Club by France. There is an ongoing internal reconciliation exercise to prevent such arrears from reoccurring. In addition, some pre-HIPC arrears to Iraq still exist but an agreement in principle has been reached and is currently pending finalization.
Per Zambia’s Constitution, public debt claims constitute a charge on the government’s consolidated fund and are therefore given explicit priority over most other government spending mandates.
While foreign investors have not participated in the primary market since the third quarter of 2018, secondary market purchases have kept the total stock of LC debt held by foreign investors broadly unchanged in kwacha terms since end-2017.
The composite indicator is calculated using data from the April 2019 WEO.
During 2015–16, a period of a large decline in copper prices and a depreciating exchange rate, the external PPG debt service to revenue ratio averaged 16 percent with the government accumulating a large amount of arrears to domestic suppliers while fully meeting priority spending mandates (including debt payments).
With the exception of the de minimis arrears reported in footnote 5, which are in the process of being cleared.
Per LIC DSF guidance, voluntary reprofiling discussions (i.e. not expected to result in a distressed debt exchange) are not to be considered a distress event.