Zambia reaches agreement with official creditors to restructure its external debt

By James Kunda

LUSAKA, Zambia (AA) - Zambia reached an agreement on Thursday with its official creditors under the G-20 Common Framework to restructure $6.3 billion of debt.

"Today is a big day for Zambia as we reach an agreement with our official creditors on a debt treatment plan. We are grateful for the support from our official creditors in resolving Zambia’s debt overhang that has been choking our economy," Finance Minister Situmbeko Musokotwane said in a statement in the capital, Lusaka.

Zambia in 2020 became the first African country to default on its sovereign debt during the COVID-19 pandemic and has struggled since in protracted negotiations to agree to a deal on around $12.8 billion of external debt it has placed for restructuring since attaining a $1.3 billion bailout package from the International Monetary Fund (IMF) in 2022.

Earlier reports on Thursday indicated that the southern African nation had sealed a $6.3 billion debt restructuring deal, although Musokotwane's statement did not quote any figures.

He however described the development as a landmark achievement and a significant step towards restoring the country’s long-term debt sustainability.

"It complements the strong commitments from Zambia’s multilateral development partners to support the country’s economic recovery through substantial concessional financing. The government commends the support and cooperation of its official creditors in reaching this agreement, which demonstrates a mutual commitment to restoring debt sustainability in line with the IMF program targets," Musokotwane said.

He said the terms of the agreed treatment will be further described and formalized in a memorandum of understanding between the country and the creditors, which will then be implemented through bilateral agreements with each member of the official creditor committee. The government looks forward to engaging with official creditors to ensure prompt implementation of the agreed terms, he said.

The agreement is further expected to pave the way for the approval by the IMF executive board of the first review of the fund-supported program in the coming weeks, allowing for the next tranche of IMF financing of about $188 million to be disbursed.

"This disbursement will further bolster Zambia’s economic recovery and reform agenda. It should also support ongoing engagement with private creditors, including bondholders, with whom Zambia remains committed to finding an agreement on comparable terms as early as possible, to decisively resolve the issue of Zambia’s debt overhang," said Musokotwane.

Leading in the delight of the development, the country's President Hakainde Hichilema said it represented a significant milestone in efforts towards an economic recovery.

"By resolving our debt burden, we will be better positioned to attract the essential investments needed to generate employment opportunities for our citizens," Hichilema said in a tweet.

IMF Managing Director Kristalina Georgieva congratulated the country on the milestone, which she described as a benchmark for other African nations seeking preferential debt treatment under the same framework.

With the latest development, the country seeks to rekindle the success it attained when it attained the Highly Indebted Poor Countries (HIPC) completion point two decades ago.

At that point, the country attained a 100% debt write-off.

Of the country's total external debt, China is the largest creditor, accounting for more than half of the credit.