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Economy in crisis awaits Zambia's new finance minister Musokotwane

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By Reuters

By Chris Mfula

LUSAKA -Newly elected President Hakainde Hichilema on Friday named an experienced international economist to a second stint as Zambia’s finance minister, tasking him with pulling the country out of twin debt and fiscal crises.

The appointment of Situmbeko Musokotwane, who held the same post from 2008 to 2011, was announced three days after Hichilema pledged at his swearing-in ceremony to bring public spending and the budget deficit under control.

As well as tightening fiscal policy, Musokotwane – a former deputy central bank governor who has also held positions with the International Monetary Fund and World Bank – will face fraught negotiations with multiple creditors on the country’s $12 billion external debt.

His appointment was announced by Hichilema’s United Party for National Development in a Twitter post.

Zambia, Africa’s second-biggest copper producer, became Africa’s first pandemic-era sovereign default in November after failing to keep up with international debt servicing payments.

Of its foreign debt, some $3 billion is in Eurobonds, $3.5 billion is bilateral debt, $2.1 billion is owed to multilateral lending agencies, such as the IMF, and $2.9 billion to commercial banks.

Complicating things further, about a quarter of the total is held by either China or Chinese entities via deals that have strict secrecy clauses. That has rendered talks for IMF debt relief particularly tough.

Zambia’s government borrowed too much during boom times last decade, and was then hit by a fall in commodity prices, triggering a recession exacerbated by the impact of the COVID-19 pandemic.

Hichilema scored an unexpected landslide victory over incumbent Edgar Lungu in the Aug. 12 election, his sixth run for the presidency and Zambia’s third peaceful change of power to an opposition party since independence from Britain in 1964.

The country’s dollar-denominated sovereign bonds have since rallied, reflecting market optimism in a solution to its debt woes.

The bonds did not immediately react to the new appointment, but they have added around 11 cents across the curve since Hichilema’s win, with the spread of the debt over safe haven U.S. Treasuries narrowing to 1,961 points this week, the lowest since March 2020.