IN a significant breakthrough for Zambia’s strained public finances, the country has successfully reached a deal to restructure more than $6bn in debts owed to other governments, according to a French official. Zambia, which became the first African country to default on its sovereign debt during the Covid-19 pandemic in 2020, has been engaged in prolonged negotiations to restructure its $12.8bn external debt.
‘We have reached an agreement on the outline of a debt treatment, we’ve reached the end of the negotiation,’ stated an anonymous French official during a press briefing.
Under the agreement, Zambia’s public sector creditors have agreed to reschedule $6.3bn, including $1.3bn in arrears, while private sector creditors are expected to do the same for the $6.8bn owed to them. The French official added, ‘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 debt restructuring plan entails rescheduling Zambia’s debt over a period of more than 20 years, with a three-year grace period during which only interest payments will be due.
This restructuring agreement with official creditors opens the way for Zambia to receive an additional $188 million tranche from the IMF, part of a $1.3bn 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,’ stated Kristalina Georgieva, Managing Director of the IMF, in a written statement.
Concerns have been raised about the scale of debt relief required by Zambia, with some of the country’s main creditors expressing reservations. China, Zambia’s largest bilateral creditor, has faced accusations from Western officials of delaying restructuring talks, although Beijing denies these claims. Of the $6.3bn owed to government bodies, $4.1bn is specifically owed to the Export-Import Bank of China, according to the French official.
‘I am pleased that the international community has come together to support Zambia in its time of need,’ said U.S. Treasury Secretary Janet Yellen in a statement. She urged all official bilateral and private sector creditors to swiftly finalise the debt restructuring process, providing relief to Zambian families and encouraging the private investment necessary to jumpstart the economy.
Zambian President Hakainde Hichilema was among 40 leaders attending a summit in France, focused on easing the debt burden on vulnerable countries and mobilising new funds for climate finance. The official noted that Beijing was keen not to be seen as obstructing debt relief for Zambia at the summit, and French President Emmanuel Macron’s discussions with Chinese authorities in April played a role in unblocking the situation.
Zambia serves as a test case for a debt restructuring framework supported by the Group of 20 (G20) wealthy nations, aimed at streamlining relief for countries grappling with the developing world debt crisis, exacerbated in part by the Covid-19 pandemic. However, the process has been slow for Zambia, deterring most struggling governments from seeking help under the mechanism.
