Zambia Warns It Is Likely To Default On Debts

The Zambian government has warned creditors that it will likely default on its debts, including Eurobonds, unless they agree to a relief period on interest payments. 

The government owes $3bn in Eurobonds alone. Last month it asked creditors for a deferral of $120 million for six months while it figures out a debt restructuring strategy. 

Despite the threat of default, bondholders, who are due to meet next week, have said they plan to reject the proposal.

In a statement, Secretary to the Treasury Fredson Yamba said all creditors had been asked to consider similar relief packages, after some non-commercial creditors agreed to a payment freeze under a G-20 plan. 

He said that the only foreign currency debts which Zambia will continue to pay are to multilateral agencies and debts on a few priority projects with immediate economic and social impact. 

Zambia’s bonds, which are due in 2024, fell more than 3 per cent to 46 cents on the dollar after the default warning. The government is due to pay more than $42 million in interest on Wednesday, with a grace period of 30 days to make up the missing payment before being officially in default. 

The Financial Times has reported that if Zambia fails to pay it will become the first African country to default on its debts as a result of the coronavirus pandemic. However, Zambia’s obligations were mounting far before the global pandemic hit, with total government debt growing from 32% of GDP in 2014 to 88% of GDP in 2019 under President Lungu’s administration.