10 Apr

Zambia’s Bonds Plummet on Concern It’s Pulling a Mozambique

Investors fretting that Zambia may have more debt than it’s let on have sent the nation’s Eurobonds tumbling.

Yields on the copper-producing country’s $1.25 billion amortizing bonds due in 2027 rose as much as 54 basis points, the most since February 2016, before paring the increase to 50 basis points on Monday. At 8.45 percent, the yield was the highest in more than a year.

Banks including Nomura Holdings Inc. say the government may have greater external liabilities than the official figure of $8.7 billion.

That’s bad news for holders of Zambia’s dollar securities, which were already the worst performers in Africa year-to-date through the end of last week, losing 2.4 percent, according to the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index.

The risk is that Zambian bondholders could find themselves in a similar situation as investors in Mozambique, where hidden debts led to default and the government is seeking to restructure.

Zambia has been in talks for several months with the International Monetary Fund about a $1.3 billion bailout, but the two sides have failed to strike a deal, partly because of the Washington-based lender’s concerns about foreign borrowings.

This ratchets up risk, according to Robert Besseling, director at political risk advisory firm EXX Africa Ltd., who also believes Zambia’s foreign debt could be much higher than the official number.

“The risk of debt defaults, especially on short-term high-interest loans, is rising fast,” he said in an emailed note Monday. “In the absence of an IMF aid program to boost foreign currency reserves and improve balance of payments, Zambia is quickly headed for a broad economic and financial crisis.”

Not everyone is convinced the debt situation is as murky. There is “no hard evidence” that the risk of hidden loans in Zambia is greater than any other countries with similar credit ratings, according to Gregory Smith, a sovereign-debt strategist at Renaissance Capital who was previously a World Bank economist in Zambia.

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09 Mar

Ghana Wants to Shake Up the Way It Collects Taxes

Ghana wants to shake up the way it collects tax with the International Monetary Fund telling the government that it’s not raising sufficient income.

The West African nation needs to increase revenue as it plans to raise spending and reduce debts, which the IMF said to remain at risk of distress.

At the same time, Ghana is finalizing a $1-billion bailout program it entered with the Washington-based lender in April 2015 and has to meet targets for fiscal consolidation after years of chronic overspending.

Ghana should pursue its fiscal goals by raising collections as spending on fixed investments, such as infrastructure, are already too low, according to the IMF.

More than two-thirds of businesses in the nation are in the informal sector and will be brought into the tax net, said Kwasi Bobie-Ansa, an acting assistant commissioner at the Ghana Revenue Authority.

“Ghana does not necessarily need to legislate new taxes, but must find ways of widening the net,” Edem Harrison, a research analyst at Frontline Capital Advisors in Accra, the capital, said by phone. “The government needs to block revenue leakages and stop the wastage at revenue collection points, such as the ports.”

Ghana collected 27.4 billion cedis ($6.2 billion) in taxes in the first 11 months of last year, or the equivalent of 13.4 percent of the gross domestic product, against a target of 29.4 billion cedis, according to data from the finance ministry.

This compares with average tax collections as a percentage of GDP of 19.1 percent for 16 African countries in 2015, according to the Organization for Economic Co-Operation and Development.

Ghana needs tax revenue of at least 15 percent of the $45 billion economies, Joe Abbey, an economist at the Accra-based Centre for Policy Analysis, said by phone. This is the minimum requirement to meet the nation’s debt obligations and to avoid the need for the central bank to finance the budget, said Abbey.

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