Zambia’s official creditor committee is on the verge of signing a crucial memorandum of understanding (MoU) aimed at restructuring the nation’s $6.3 billion debt, with the agreement expected to be finalized before the conclusion of the International Monetary Fund’s (IMF) annual meeting next week. Sources familiar with the matter have disclosed this development.
This marks a significant step in ongoing negotiations between Zambia and its creditors, which have progressed slowly since June when the government reached a deal-in-principle with a consortium co-led by China and France. The proposed agreement outlines key terms, including reducing interest rates to as low as 1% and extending loan repayments until 2043. Additionally, it includes provisions for a substantial 40% reduction in the net-present value of the debt.
Zambia’s debt troubles have persisted since the nation became Africa’s first to default on its sovereign debt in 2020, amid the economic challenges brought about by the COVID-19 pandemic. The nation has faced hurdles in reaching a consensus with creditors, leading to delays and difficulties, including a withholding of a nearly $190 million disbursement by the IMF earlier this year due to protracted negotiations within the official creditor group. Notably, China stands out as Zambia’s largest bilateral creditor in this complex debt restructuring process.
The issue of debt distress in emerging markets and China’s significant role as a major creditor are expected to take center stage at the upcoming IMF meetings. Notably, some of Sri Lanka’s official creditors are actively seeking to reach an independent agreement to restructure the nation’s debt, bypassing China’s involvement in the process. The IMF is actively engaged in promoting a broader “roundtable” discussion to navigate the way forward in managing debt treatments involving the Paris Club, China, private creditors, and other stakeholders.
The Paris Club, an informal group consisting primarily of developed creditor countries (with China as a non-member), has expressed confidence that a comprehensive agreement will be reached during the IMF meetings, according to insiders. However, at the time of reporting, the Paris Club had not responded to requests for comment via email.
Photo Source: REUTERS
October 4, 2023
Delino Gayweh
Serrari Financial Analyst
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