Zambia’s long-delayed external debt restructuring will save the southern African country $7.65 billion by 2026, the International Monetary Fund (IMF) said in a report after it approved the latest payout from a $1.3 billion rescue loan.
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 due to the size of debt cuts that this entailed.
Restructuring the country’s overseas debt will cover 72%, or $7.65 billion, of its balance of payments gap between 2022 and 2025, the IMF said in a staff report. The country’s overseas debt had reached $20.9 billion at the end of 2022.
The IMF’s executive board on Thursday approved an immediate disbursement of $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 $6.3 billion of its overseas debt with Paris Club members and China, among others.
Zambia 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% at the end of 2021 to 22% 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.
