Zambia close to finalizing debt restructuring agreement

AFRICAN BUSINESS AND ECONOMYOctober 13, 2023 at 12:03 PM UTC

Zambia is nearing an agreement to restructure its loans with official creditors, as confirmed by the International Monetary Fund (IMF). The parties are in the final stages of finalizing the $6.3 billion deal reached in principle in June, which would enable the disbursement of another portion of a $1.3 billion IMF extended credit facility.

Earlier, IMF Managing Director Kristalina Georgieva had stated that the accord with official creditors, co-led by China and France, had been signed. To fully implement the restructuring, Zambia must also sign bilateral agreements with each creditor.

As a result of this news, Zambia's dollar-denominated bonds saw a rise in value, with the debt due in 2027 trading at its highest level since September 2022. The bond maturing in 2024 also reached a one-year high. However, the kwacha currency weakened by 0.3% against the dollar.

Key Takeaways

Zambia in 2020 became the first African country to default on its sovereign debt during the COVID-19 crisis and struggled since then in protracted discussions to agree on a deal. That made the country 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 pandemic. The ongoing debt restructuring is closely watched by other governments of lower-income countries facing similar debt-servicing challenges. This process is seen as a precedent for how debt deals under the Common Framework might be structured, as China collaborates with traditional creditors of the Paris Club to address debts. Successful agreements, like the one in Zambia, may lead to quicker resolutions for other nations facing similar debt challenges.