ZAMBIA is expected to reach a debt restructuring deal with its international bondholders by the time the International Monetary Fund (IMF) undergoes a second review of its rescue loan programme with the country later this year, an IMF official said on Friday.
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The IMF’s executive board on Thursday approved an immediate disbursement of US$189 million to Zambia following its first review of the programme, after the country secured a deal last month with official bilateral creditors to rework about US$6.3 billion of overseas debt with Paris Club members and China, among others.
Further IMF payouts will not necessarily stop due to unfinished negotiations to restructure about US$3 billion in overseas bonds by the second review, which is scheduled in October, IMF Zambia mission chief Allison Holland said in a press briefing.
“While Zambia is in arrears with private creditors, we can continue to move forward with the IMF programme so long as the authorities remain in good faith negotiations with those creditors,” Holland added.
Zambia also aims to sign a memorandum of understanding with its bilateral creditors by the second review, central bank governor Denny Kalyalya told a separate media briefing on Friday.
“The burden of the private sector creditors is going to be similar to the burden of the official creditor,” Finance and National Planning Minister Situmbeko Musokotwane said when asked about a civil society assessment that private creditors need to take a 50 percent haircut.
Secretary to the Treasury Felix Nkulukusa said Zambia initially suggested a 49 percent haircut in October last year based on 2021 economic parameters and that figure reduced to around 43 percent following an IMF review.
Zambia’s long-delayed external debt restructuring will save the southern African country $7.65 billion by 2026, the IMF said in a report after it approved the latest $1.3 billion rescue loan payout.
The expected figure is lower than the $8.4 billion debt relief the IMF said in September that Zambia needed, which bilateral creditors including China and international bondholders had challenged.
The change is partially explained by the reduction of non-resident creditors holding domestic debt and more funding than expected from multilateral development banks, the IMF’s Holland said.
She added that about US$300 million of the reduction in the balance of payments gap reflects Zambia’s improved macroeconomic environment.
Zambia, whose external debt reached $20.9 billion at the end of 2022, was the first African country to default on its sovereign debt in 2020 during the Covid-19 pandemic, and faced lengthy delays in restructuring negotiations.
Zambia’s official creditor committee met seven times after forming in June 2022 and held “several technical workshops,” the IMF report said, with points of contention including the exclusion of overseas local bondholders from the restructuring.
Foreign holdings of domestic debt fell from 29 percent at the end of 2021 to 22 percent a year later, a proportion maintained in the first third of 2023, it said.
“Uncertainty around the debt restructuring process has led to a sharp drop in investor demand for domestic government securities,” the report said.
Using a contingent debt instrument – where Zambia will pay more if its economy performs better – emerged as a solution at the third official creditor meeting in January, with the agreement finally reached on June 22, the IMF said. – REUTERS.
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