Washington DC September 6 2022: Zambia wants $8.4 billion in cash debt relief from this year through 2025, the International Monetary Fund said in a report published Tuesday that will set the tone for complex restructuring negotiations with creditors ranging from Chinese state-owned banks to eurobond holders.
The nation, which in 2020 became Africa’s first pandemic-era sovereign defaulter, finalized a deal with the Washington-based lender last week for a $1.3 billion bailout and economic program. The government is seeking to restructure its external liabilities that reached $17.3 billion last year, and the IMF report reveals for the first time the forecast economic parameters that will frame talks starting this month.
“My initial read is there’s no big surprises there in terms of what their expectations are,” said Kevin Daly, a portfolio manager at abrdn Plc in London, who sits on Zambia’s eurobond holders committee. “Now comes the more difficult part: discussing the modalities of the restructuring with the various creditors groups. It’s never that straightforward.”
The IMF had been waiting for Zambia’s official bilateral creditors committee, co-chaired by China and France, to provide it with assurances that they were willing to rework their loans to the nation. Those came on July 30, and the government plans to “vigorously” begin restructuring negotiations with official and private creditors in September, according to Mukuli Chikuba, the Finance Ministry’s permanent secretary.
While official creditors were privy to at least some of the information contained, most private creditors — including the holders of its $3 billion in outstanding eurobonds — had been eager to read the report to prepare their restructuring strategies. There were fears the report’s economic forecasts for Zambia could be seen to be too conservative, making negotiations more difficult.
The $8.4 billion worth of relief would equal an estimated 90% of payments that Zambia should have made to external private and official creditors between 2022 and 2025, according to UK-based Debt Justice, previously known as Jubilee Debt Campaign, and which lobbies for poor countries’ loans to be written off.
“It is welcome that the IMF is pushing for large-scale cancellation of Zambia’s external debt payments in the next four years,” said Tim Jones, policy head at the organization. “But these must be canceled permanently, not rolled over to the 2030s to fuel another debt crisis next decade.”
The IMF report also says Zambia would require additional debt relief from 2026 to 2031, which it didn’t quantify.
More Key Points from the report:
The present value of Zambia’s public and publicly guaranteed debt is 85.5% of gross domestic product in 2021, falling to 70.9% this year, and 68.1% by 2025. This moderate decline is a “positive surprise,” Daly said.
Zambia’s primary fiscal balance is seen improving to a 3.2% surplus by 2025 from a deficit of 6% of GDP in 2021.
The government will only accept disbursements on contracted but unspent project loans of $1.4 billion, of which $834 million is from the World Bank and African Development Bank. It had contracted $3.9 billion from lenders that is yet to be disbursed.
Because Zambia defaulted before restructuring, the probability of regaining meaningful access to international markets in the medium term appears low.
