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Zambia Seeks Debt Restructuring From Bilateral Creditors

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CEM REPORT, FINANCE | African countries are seeking debt restructuring especially as their economies are in distress from global economic shocks. Zambia like its African counterparts has moved to restructure its $6.3 billion debt with its bilateral creditors.

According to the Zambian finance ministry, it has agreed to a memorandum of understanding (MoU) which will see a debt restructuring with official creditors including China and members of the Paris Club of creditor nations in June. The MoU includes an average extension of debt maturities of more than 12 years, with interest rates set at 1 per cent during the next 14 years and up to 2.5 per cent after that.

The debt restructuring will see Zambia pay about $750 million in the next decade compared to almost $6 billion that was due to official creditors before the debt restructuring. There is a mechanism to increase payments if Zambia’s economy performs better than expected.

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“Each official creditor will now begin their internal process to sign the MoU. Following the signing of the MoU, the terms will be implemented through bilateral agreements with each member of the OCC (Official Creditor Committee),” the ministry said.

Zambia’s finance minister, Situmbeko Musokotwane, also revealed that the country is currently in formal talks with a bondholder creditor committee to restructure more than $3 billion of overseas bonds.

“The next step is to secure a comparable agreement with our private creditors.
“We are grateful to all our official creditors, especially the co-chairs of the committee, China and France, and vice-chair South Africa, for their commitment to help resolve Zambia’s debt overhang,” Musokotwane said.

The copper producer has three outstanding dollar bonds maturing in 2022, 2024 and 2027, currently trading at 52-58 cents on the dollar. However, creditors have been restricted from trading the country’s notes since debt restructuring kicked off earlier in October.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Zambia had signed the MoU with official creditors, which was later walked back by Zambia’s finance minister and the IMF.

It is not certain how long the debt restructuring agreement between Zambia and each bilateral creditor is going to take, however, it is worth noting that Zambia was the first African country to default on its debt in the pandemic era. The debt restructuring move is coming almost three years after the country defaulted.

Recall a CEM report on Ethiopia moving to restructure its debt. According to the International Monetary Fund (IMF), Deputy Director for Africa, Annalisa Fedelino, Ethiopia who recently got relief from China over its debt is seeking similar treatment from the institution.

Ethiopia’s external debt totalled $28.2 billion at the end of March. Its debt includes a $1 billion international bond maturing in December 2024. Between 2006 and 2022, Chinese lenders committed more than $14 billion in loans to the country.

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