Zambia

Zambia's international bondholders have criticised the International Monetary Fund's debt restructuring framework as "arbitrary" and for excluding the country's domestic debt, sources involved in the process have told Reuters. Zambia has been in default for almost two years and an IMF Debt Sustainability Analysis published last week called for its debt-service-to-exports ratio to be cut to a 140% "threshold" from 153% quickly and to 84% by 2027.

Zambia has requested $8.4 billion in debt relief from its foreign creditors over the next three years, including from China, the country’s single largest creditor and the largest lender to the developing world, WSJ Pro Bankruptcy reported. Zambia’s debt restructuring is widely seen as a test of how much debt relief China will be willing to provide to countries that can’t repay what they have borrowed from Beijing, which has shown a reluctance in recent years to write down its bilateral debts, preferring to lend more or reprofile them rather than accept haircuts.

Zambia's debt restructuring will be a mixture of haircuts to loans' original value and maturity extensions, a senior Zambian finance ministry official said Thursday, after the Fund approved a $1.3 billion program for the southern African country, Reuters reported. Negotiations with creditors to restructure debt that reached $17 billion at the end of 2021 are starting now, Mukuli Chikuba, the Permanent Secretary to the Ministry of Finance, said at a joint Zambian government and IMF news conference in Zambia's capital Lusaka.

China invited Zambia's private creditors to discuss the nation's debt later this month after official creditors agreed to a restructuring of its debt, Chinese Ambassador to Zambia Du Xiaohui said on Thursday, Reuters reported. Zambia's creditors have pledged to negotiate a restructuring of the country's debts in a move welcomed by International Monetary Fund managing director Kristalina Georgieva as "clearing the way" for a $1.4 billion fund programme.

Zambia's sovereign dollar-denominated Eurobonds gained more than 1 cent in the dollar on Monday, after a pledge on Saturday by bilateral creditors to negotiate debt relief cleared the way for a $1.4 billion deal with the IMF, Reuters reported. Its 2024 maturity was up 1.417 cents at 8.46 GMT, according to Tradeweb data, while the 2027 issue was up 1.242 cents. Bonds were bid between 58.5 cent and 59.2 cents - still trading at distressed levels - but at their strongest in a month. There was no trading data available for the issue that matures in September 2022.

Zambia is cancelling more than $2 billion worth of projects financed by commercial loans to reduce the risk of accumulating more non-concessional debt, the ministry of finance said, Reuters reported. In 2020, Zambia became the first nation to default in the COVID-19 era. At the end of 2021, its external debt stood at $17.27 billion, of which China held $5.78 billion, and it is in negotiations with creditors and the International Monetary Fund (IMF) to lift itself out of this debt hole.

China's lack of experience with tricky debt restructurings and slow coordination among its public lenders is holding up debt relief for Zambia, a test case for the top emerging market creditor, Reuters reported. Zambia became in 2020 the first country to default in the COVID-19 pandemic era, struggling under a debt burden worth 120% of GDP. Its external debt topped $17 billion at the end of 2021, of which a third was owed to China, according to Zambian government data.

Zambia’s central bank left its benchmark rate unchanged on expectations that inflation will continue slowing and to support a fragile economic recovery, Bloomberg News reported. The monetary policy committee held the rate at 9%, Governor Denny Kalyalya told reporters Wednesday in Lusaka, the capital. It was Kalyalya’s second rate decision since being reappointed to the post in September. The decision to hold was supported by a “sharp decline in inflation since December” and due to “some fragility” in economic growth, Kalyalya said.

Zambia’s creditors would have to take losses of about two-thirds if the country is to meet the International Monetary Fund’s requirements for a debt restructuring, according to a study by groups advocating for debt forgiveness, Bloomberg News reported. The southern African nation, which became the continent’s first pandemic-era defaulter in 2020, has capacity to repay about between $2.8 billion and $3.5 billion of debt over the next 14 years, according to the study published on Friday by an alliance of local activist organizations and the Jubilee Debt Campaign U.K.

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