Deal to resolve Zambia’s debt crisis ‘likely’

Deal to resolve Zambia’s debt crisis ‘likely’

Deal to resolve Zambia’s debt crisis ‘likely’

Zambian officials met with an official committee of the country’s international creditors for the first time on Thursday as Lusaka seeks to negotiate a deal to restructure its unsustainable debt load and unlock IMF funding.

The official creditor committee consists of members of the Paris Club, an informal group of creditor countries which meets monthly in the French capital to seek solutions when debtor countries have payment problems, and China. The Zambian officials joined the meeting in Paris by video link.

In 2020, Zambia suffered the first pandemic-era sovereign default. At the end of 2021 it had external debt of $17.27bn, according to government data. Approximately $6.6bn of that was held by 18 official and commercial Chinese financiers.

In December, Zambia reached a staff-level deal with the IMF for a $1.4bn three-year extended credit facility. But for the bailout package to move forward, Zambia needs assurance from creditors that its debt can be restructured.

Following meetings in Lusaka with President Hakainde Hichilema and finance minister Situmbeko Musokotwane on Wednesday, deputy managing director of the IMF Antoinette Sayeh stressed the need to reach a deal on Zambia’s debt crisis and called on all creditors to quickly find an arrangement.

“We urge creditors to provide financing assurances as soon as possible, as they are needed before staff can put forward Zambia’s program for consideration by the IMF Executive Board. This will allow Zambia to access Fund resources, and also unlock access to critical financing from other partners, to help boost its economic recovery,” said Sayeh.

Hopes of reaching a deal

Claims that that China was holding up Zambia’s debt relief because of lack of experience with tricky debt restructurings and slow coordination among its public lenders have made Chinese creditors keen not to be seen as the impediment to a potential debt deal.

“There’s an emerging consensus that some kind of deal will be reached. The Chinese are very concerned about the optics of what happens in Zambia,” says Eric Olander, editor in chief of The China-Global South Project website.

“China and other bilateral creditors do not want to be seen as the impediment to the IMF bailout,” Olander argues.

At this first meeting, Zambia will present its case for debt relief, but discussions are unlikely to be concluded before Zambia’s target date of the end of June.

“These are not going to be easy discussions,” says Olander. “The Chinese coalition alone is made up of at least a dozen different creditors so just getting them to agree with one another is not going to be easy, much less with the multilaterals, bondholders, and other bilateral lenders.”

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