Zambia’s official creditors, led by China, agreed to provide debt relief to the southern African country, paving the way for relief by the IMF, and how Beijing is working with other lenders to work across emerging markets. has set a precedent for its ability to deal with the threat of a wave of defaults.
A creditors committee co-chaired by China and France said on Saturday that it had “committed to negotiate restructuring terms with the Republic of Zambia” under the G20 framework to coordinate debt relief.
IMF Managing Director Kristalina Georieva said she “very gladly welcomes” creditor commitments to release a $1.3 billion IMF loan to restructure Zambia’s finances. Zambia still needs to negotiate the exact terms of the bailout and reach similar agreements with private creditors.
“Zambia’s support from the official Committee of Creditors for its envisaged IMF-supported program provides the IMF with a formal loan guarantee, along with a commitment to negotiate the terms of the debt restructuring,” Georgieva added. rice field.
The deal is an early sign that China is ready to coordinate with other public creditors to restructure low-income country debt, rather than deal with its own defaults behind closed doors. . Zambia has become a test case for countries that have sought loans from Beijing in recent years, such as Sri Lanka and Pakistan, which have already defaulted on their debts.
Zambia became the first African country to default on its debts during the 2020 pandemic. stopped paying off her $17 billion in foreign debt, including her $3 billion in U.S. dollar-denominated Eurobonds, after years of a mounting debt slump.
China has emerged as the country’s largest creditor over the past decade, providing an estimated $6 billion in loans, as Zambia embarked on ambitious infrastructure projects such as roads, dams and airports. These worsened as the economy slowed.
President Hakainde Hichilema’s government last year agreed terms for a three-year IMF bailout, just months after coming to power in a landslide poll victory over Edgar Lungu, who presided over the worsening debt crisis.
However, the Hichilema government had to wait for assurances from official creditors before initiating the IMF program and laying out the terms of the debt restructuring in detail with both private and official creditors.
Zambia’s Finance Minister Situmbeko Musokotwane said: “I am confident that Zambia, together with its partners, will properly address this issue with the urgency necessary to return the economy to a sustainable growth trajectory.”
Zambia’s finance ministry on Friday detailed plans to cancel an additional $2 billion in undisbursed loans related to the project. This mainly affects Chinese creditors.
Private creditors, such as bondholders, are expected to give Zambia debt relief at least as much as official lenders would provide, based on the so-called principle of comparability of treatment.
On Saturday, the official Board of Creditors urged other lenders to “commit without delay to negotiate debt settlements with Zambia that are essential to ensure the full effectiveness of Zambia’s debt settlement under a common framework. ‘ urged.
“If negotiations are being initiated with bilateral creditors, it would indicate that China has agreed financial guarantees and is relatively satisfied with the IMF’s debt sustainability analysis and the scale of its restructuring and haircuts. A member of the committee representing Abrdn and Zambian bondholders.
But he argued that bondholders were dissatisfied with the common framework’s sequencing of events, in which commercial creditors were informed of the size of the restructuring and the underlying assumptions only after official creditors had reached mutual agreement. The IMF and Zambia.
“We are still in the dark as creditors,” Daly said. “We’ve always said we should share to speed things up. [the IMF’s debt sustainability analysis] with us. Why such a veil of secrecy? ”