Zambia’s Lungu faces tight election competition as debt crisis stings

LUSAKA, Aug 9 (Reuters) – Zambian President Edgar Lungu will seek to fend off a perennial opposition challenger in a vote on Thursday that could be decided by frustrated young voters amid economic turmoil and a plan to bailout pending for one of Africa’s most indebted countries.

Investors are closely watching the Aug. 12 vote in the major copper producer which experienced the continent’s first pandemic sovereign default in November.

Support from the International Monetary Fund (IMF), already widely accepted, is on hold until after the vote. Debt restructuring is also seen as a first test of a new global plan to ease the burden on poor countries.

In power since 2015, Lungu, 64, faces a potentially close fight against Hakainde Hichilema – known as “HH” – a businessman who has criticized the incumbent’s economic management.

While Hichilema has shown a willingness to tackle debt issues and engage with investors, Lungu’s Patriotic Front (PF) has sought for years to avoid an IMF program, noted Christian Libralato, manager of emerging markets portfolio at BlueBay Asset Management.

“Investors can see a potentially clearer path to an IMF program and debt restructuring under HH,” said Libralato, whose company owns Zambia’s defaulted bonds.

Zambia owes more than $12 billion to external creditors and spends 30-40% of its revenue just to pay interest on its debt, ratings firm S&P Global estimates. Its debt-to-GDP ratio was close to 120% last year, one of the highest in emerging markets and likely double the level considered manageable.

Zambia said in May it had reached broad agreement with the IMF on macroeconomic and fiscal targets and policy issues during talks to secure loans, paving the way for what investors hope will be a post-deal. electoral.

YOUTH VOTE

The Zambian Electoral Commission announced in May a ban on campaign rallies to curb the spread of COVID-19. But the PF and Hichilema’s United National Development Party held rallies under the guise of handing out face masks.

Lungu campaigns on infrastructure investment and increased state control over mining.

Copper mining, which generates around 70% of Zambia’s export earnings, has been heavily politicized ahead of the elections.

ZCCM-IH, the mining investment arm of the Zambian state, agreed in January to take on $1.5 billion in debt in exchange for full control of Mopani Copper Mines, which former majority owner Glencore (GLEN .L) had planned to close. Read more

Lungu presented the agreement as a boon for the workers.

Hichilema, however, criticized it, saying it added to Zambia’s indebtedness.

Hichilema, 59, portrays himself as self-taught in campaign videos, saying he went to school barefoot as a child and went to university on a government scholarship. He was CEO of an accounting firm before entering politics.

He contested and lost five presidential elections, but only narrowly lost to Lungu in the contested 2016 vote. He was charged with treason and briefly imprisoned the following year.

With polls seen as unreliable, analysts believe this election is too close to be called. Political violence escalated ahead of the vote, including two ruling party supporters killed with machetes, prompting Lungu to deploy the army.

Some 54% of registered voters are 34 or younger, according to statistics from the Electoral Commission of Zambia (ECZ).

This could help Hichilema, who has put the economy at the center of his campaign, said Euston Chiputa, a history professor at the University of Zambia.

“Hichilema has been gaining traction among young people because there are frustrations about employment,” he said.

Unemployment hit a 10-year high in 2020, according to estimates by the International Labor Organization, and the almost 40% depreciation of the local kwacha currency since January 2020 has made life more expensive for the roughly 18 million people of Zambia.

Roads, schools and hospitals built by the Lungu government and paid for with debt – including Chinese loans and Eurobonds – have yet to deliver the promised growth.

The IMF expects the economy to be among the weakest in Africa this year, with GDP expected to grow just 0.6% after contracting 3.5% last year.

A win for Hichilema, seen as a market-friendly candidate, could trigger a relief rally for Zambian assets, said Kevin Daly of Aberdeen Standard Investments, a member of Zambia’s External Bondholders Committee, which represents Zambian assets. holders of Zambian Eurobonds.

Zambian government bonds have already gained more than 30% since November as investors look to an IMF deal. , ,

Zambia is also expected to be the biggest beneficiary of the IMF’s new $650 billion allocation of special drawing rights, which will boost its foreign exchange reserves.

Reporting by Chris Mfula in Lusaka, Marc Jones and Tom Arnold in London; Written by Helen Reid; Editing by Joe Bavier and Andrew Cawthorne

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