Zambia seals $6.3-billion debt restructuring deal

PARIS, France – Zambia has clinched a deal to restructure more than $6 billion in debts owed to other governments, a French official said on Thursday, June 22, in a long-awaited breakthrough to ease pressure on the southern African country’s strained public finances.

Zambia in 2020 became the first African country to default on its sovereign debt during the COVID-19 pandemic and has struggled since in protracted negotiations to agree a deal on the $12.8 billion of external debt it was trying to restructure.

“We have reached an agreement on the outline of a debt treatment, we’ve reached the end of the negotiation,” the French official, who did not wish to be identified, told journalists.

Zambia’s public sector creditors agreed to reschedule $6.3 billion, including $1.3 billion in arrears, and private sector creditors are expected to do the same on the $6.8 billion owed to them, the official said.

“We’ve already spoken to representatives of the private sector and they know what to expect, that they will have to restructure and make a comparable effort,” the official added.

The agreement calls for Zambia’s debt to be rescheduled over more than 20 years with a three-year grace period during which only payments on interest are due.

The restructuring agreement with official creditors paves the way for Zambia to receive another $188-million tranche of money from the International Monetary Fund (IMF), part of a $1.3-billion package approved in August 2022.

“This agreement paves the way for the completion of the first review of Zambia’s three-year Extended Credit Facility Arrangement, which is helping put Zambia on a path toward sustainable economic growth and poverty reduction,” Kristalina Georgieva, managing director of the IMF, said in a written statement.

The scale of the debt relief Zambia requires has been a concern for some of the country’s main creditors.

Some Western officials have accused China – Zambia’s largest bilateral creditor – of dragging its feet in restructuring talks, something Beijing denies.

Of the $6.3 billion in debt owed to government bodies, $4.1 billion was owed specifically to Export-Import Bank of China, the French official said.

“I am pleased that the international community has come together to support Zambia in its time of need,” US Treasury Secretary Janet Yellen said in a statement.

“I urge all official bilateral and private sector creditors to quickly finalize the debt restructuring process that will provide relief to Zambian families and encourage the private investment that is needed to jump-start the economy.”

Zambian President Hakainde Hichilema was one of about 40 leaders attending a summit in France on Thursday and Friday, June 23, aimed at easing the debt burden on some of the world’s most vulnerable countries while freeing up billions of dollars in new funds for climate finance.

Beijing was keen not to be seen further holding up debt relief for Zambia at the summit, the official said, adding that French President Emmanuel Macron’s talks with Chinese authorities in Beijing in April also helped unblock the situation.

Zambia is viewed as a test case for a debt restructuring framework backed by the Group of 20 wealthy nations intended to streamline relief for countries caught in a developing world debt crisis sparked in part by the coronavirus pandemic.

However, the process has been achingly slow for Zambia, a fact that has discouraged all but a handful of other struggling governments from seeking help under the mechanism. – Rappler.com