A Cautionary Tale of Zambia’s International Sovereign Bond Issuances
"Eurobonds are commercial borrowings by governments in currencies other than their own - in Zambia’s case, the borrowing is denominated in US dollars. Eurobonds bring with them opportunities for economic development, but there are risks. This report assesses the current legal and institutional frameworks governing borrowing from international capital markets in Zambia, including the role of credit rating agencies. It also examines the benefits, costs and risks associated with the issuance of sovereign bonds, including the cost and risk of sovereign defaults. It also proposes the mitigation of these costs and risks. Eurobonds offer African countries easy access to monies that are free from the stringent conditionalities that often come with the traditional concessional borrowing. However, by issuing Eurobonds, African economies have been exposed to “hot money” that seeks to take advantage of relatively high interest rates in Africa. Concerns about whether Eurobonds are being spent in a way which will promote growth were confirmed in the 2013 Auditor General’s report. In addition to questions about how the funds are spent, Zambia faces legal and institutional challenges in the management of debt."