LUSAKA (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 bailout pending for one of the most indebted countries in Africa.
Investors are closely watching the August 12 vote at the major copper producer that experienced the continent’s first sovereign default in the pandemic era in November.
Support from the International Monetary Fund (IMF), already widely accepted, is suspended 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 tight fight against Hakainde Hichilema – known as “HH” – a businessman who has criticized the outgoing president’s economic management.
While Hichilema has shown a desire 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. , Emerging Markets Portfolio Manager 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 the defaulting Zambia bonds.
Zambia owes more than $ 12 billion to external creditors and spends 30 to 40% of its income just to pay the interest on its debt, estimates the rating company S&P Global. Its debt-to-GDP ratio was close to 120% last year, one of the highest in emerging markets and probably double what is considered manageable.
Zambia said in May it had reached a broad agreement with the IMF on macroeconomic and fiscal targets and policy issues during talks to guarantee loans, paving the way for what investors hope will be a deal. post-election. (Chart: Zambia’s debt compared to other major African economies,)
Zambia’s Election Commission announced in May a ban on electoral rallies to curb the spread of COVID-19. But the PF and the Hichilema United Party for National Development organized rallies under the pretext of distributing face masks.
Lungu is campaigning for investments in infrastructure and increased state control over mining.
Copper mining, which generates around 70% of Zambia’s export revenue, has been heavily politicized in the run-up to the elections.
ZCCM-IH, Zambia’s state mining investment arm, 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 had. planned to close.
Lungu touted the deal as a boon to the workers.
Hichilema, however, criticized it, saying it increased Zambia’s debt.
Hichilema, 59, portrays himself as a self-made man in campaign videos, claiming he went to school barefoot as a child and attended college on a scholarship from the government. He was CEO of an accounting firm before entering politics.
He contested and lost five presidential elections, but lost only narrowly to Lungu in the contested 2016 vote. He was charged with treason and briefly jailed the following year.
As polls are considered 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, leading Lungu to deploy the army.
Some 54% of registered voters are 34 or younger, according to statistics from the Election Commission of Zambia (ECZ).
It could help Hichilema, who has placed the economy at the center of his campaign, said Euston Chiputa, professor of history at the University of Zambia.
“Hichilema has gained ground among young people because there are frustrations about employment,” he said.
Unemployment peaked in 10 years in 2020, according to estimates by the International Labor Organization, and the nearly 40% depreciation of the local kwacha currency since January 2020 has made living more expensive for the roughly 18 million inhabitants of Zambia.
The roads, schools and hospitals built by Lungu’s government and paid for by debt – including Chinese loans and Eurobonds – have yet to deliver the promised growth. (Graphic: Zambia bonds rally to IMF hopes,)
The IMF expects the economy to be among the weakest in Africa this year, with GDP expected to grow only 0.6% after contracting 3.5% last year.
A win for Hichilema, seen as a pro-market candidate, could spark a rally of relief for Zambian assets, said Kevin Daly at Aberdeen Standard Investments, a member of the Zambia External Bondholders Committee, which represents the holders. Zambian Eurobonds.
Zambian government bonds have already gained more than 30% since November as investors look to a deal with the IMF.
Zambia is also expected to be the biggest beneficiary of the IMF’s new allocation of $ 650 billion in special drawing rights, which will increase 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