Zambia’s new president, Hakainde Hichilema, is transforming the nation’s economic fortunes in just one week in office.
The South African nation’s currency and dollar bonds have risen to the world’s best-performing since the winner of the Aug. 12 election was announced.
His election of economist Situmbeko Musokotwane as finance minister has gone well with investors, as have his pronouncements that he will swiftly conclude a financing deal with the International Monetary Fund and woo foreign investment.
Zambians have gotten used to bad news in recent years.
Copper production, which accounts for more than 70% of export earnings, stalled when the government took on mining companies. The kwacha currency depreciated from 5.10 to the dollar at the end of 2011 to a record low of 22.68 this year. Annual inflation reached nearly 25% in July, the highest level in nearly two decades.
The shift in power has improved the nation’s economic prospects, with investors optimistic that the new administration will drive a sustained recovery and restructure nearly $ 13 billion in foreign borrowing after securing IMF financing. While Hichilema had said he hopes to reach an agreement with the fund by April, Musokotwane is aiming for October.
“It’s day and night right now,” said Neville Mandimika, an economist and fixed income strategist at FirstRand Bank Ltd. in Johannesburg. “The expectation has been completely raised.”
Hichilema, 59, studied economics in the UK, served as CEO of an accounting firm and ran unsuccessfully for president five times before finally winning this month. The late President Michael Sata, whose party he removed from power, dubbed him a “calculating boy,” a mockery of his economic jargon-laden speeches.
Hichilema took advantage of widespread discontent over rampant unemployment and rising prices, especially among young voters, to secure his landslide electoral victory.
He was sworn in on August 24 and vowed to stabilize the nation’s finances after years of overspending by the administration of his predecessor Edgar Lungu, culminating in Zambia becoming the first ever defaulting on African sovereign debt since hit the coronavirus pandemic.
Hichilema will likely need to cut fuel and agriculture subsidies that have contributed to repeated budget bursts to secure IMF financing. That will be a tough sell for an electorate who expects it to cut living costs.
And even with the backing of the IMF, the new administration faces complex restructuring talks with a diverse group of creditors ranging from the China Development Bank to European funds that hold their debt in dollars.
One of the government’s top priorities is to repair ties with the mining industry.
Musokotwane wants to more than double annual copper production to two million metric tons by 2026. That would help bolster foreign exchange reserves, which had declined due to rising debt service costs.
“You will be surprised at the amount of foreign exchange that this country is going to generate,” said the Finance Minister on Friday after taking the oath. “He will not know what to do with the dollars this country will receive.”
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