Thursday, May 31, 2007

Zambia to launch sovereign bond issue

Zambia to launch sovereign bond issue
By Fridah Zinyama
Thursday May 31, 2007 [04:01]

THE World Bank has revealed that Zambia is one of the African countries expected to launch sovereign bond issues on the international market by the end of this year. A sovereign bond issue involves government borrowing from the international capital markets at lower interests over a long period of time by issuing sovereign bonds.

In its annual Global Development Finance report, the World Bank stated that Zambia, Ghana, Kenya and Nigeria were among the African countries that had expressed an interest in launching the sovereign bonds.

The bank indicated that in the recent years, the number of countries borrowing from the international capital markets by issuing sovereign bonds had increased substantially.

The report stated that for these countries, capital market access meant ready acknowledgement of their policy successes and improvements in their creditworthiness. The Bank indicated that the developing countries' improved creditworthiness had enabled them to graduate from the group of official recipients into a more advanced group of emerging market economies.

And the World Bank said global economic growth had increased risks for developing countries. The bank said higher interest rates and emerging capacity constraints would slow the rapid growth of developing countries, with global growth falling to around 3.5 per cent in 2009 from 4 percent in 2006.

In developing countries, growth is likely to moderate gradually to about six per cent in 2009 from 7.3 per cent in 2006, the report read.

The World Bank believes that the transition to slower growth would be relatively smooth, but cautioned that this realignment could also tamper some of the positive global financial conditions that have prevailed in many developing countries over the past four years.

The report said net private capital flows to developing countries reached a record US $647 billion in 2006, although their rate of growth slowed to 17 per cent from 34 per cent in 2005.

"Looking ahead, the key challenge facing developing countries is to manage the transition by taking preemptive measures aimed at lessening the risk of a sharp, unexpected reversal in capital flows," it added.

Economic Association of Zambia general secretary Chibamba Kanyama described as a positive move Zambia's readiness to issue sovereign bonds on the international capital markets.

He said the move showed increased investors confidence in Zambia's creditworthiness.
Kanyama said Zambia's attainment of the Highly Indebted Poor Country status and its other fiscal policies had qualified Zambia to be a favorable investment destination.
"Zambia is now ready to launch the sovereign policy as government has been deliberating over this issue for a long time now," Kanyama said.

He however added that it was possible to attract investors for the sovereign bond but at very high interest rates depending on the country's rating.

"At the moment Zambia has no sovereign bond rating and as such, there will be a premium above the current Treasury Bill rate of about 10 per cent," he noted. "It would be important to remember that the Treasury Bill is medium term but sovereign date is long term for even up to 50 years."

Labels: , ,


Post a Comment

Subscribe to Post Comments [Atom]

<< Home