Zambia Misses Out On Latest IMF Debt Relief

This week the International Monetary Fund (IMF) has approved emergency aid for 28 countries in response to the pandemic. The aid is intended to assist the countries in managing their debt during this time and help them meet the challenges of the pandemic. 

According to the IMF “Relief on debt service will free up scarce financial resources for vital emergency medical and other relief efforts.” 

The majority of the countries in receipt of the aid are in Africa and include neighbouring DRC, Malawi and Tanzania.  

The debt relief will be provided via the Catastrophe Containment and Relief Trust (CCRT). The approval follows an initial six-month payment approved in April. Subject to the availability of sufficient resources debt service relief could be extended for a period of two years. 

Donors include the UK, Japan, Germany, the Netherlands, Switzerland, Norway, China, Mexico, Sweden, Bulgaria, Luxembourg, and Malta. 

Relations with the IMF have proved trouble under President Lungu’s government. A bailout had been under discussion, on and off, for more than five years, with the Government rejecting an initial proposal in 2015, before returning to the negotiating table. The President then challenged the IMF to leave the country if they felt he had gone beyond the norms of good governance and democracy following the declaration of a state of emergency in 2017. The fund subsequently withdrew its representative to Zambia in August 2018. The major stumbling block to a deal appears to be concerns regarding Zambia’s debt sustainability.  

Concern regarding Zambia’s debt position has been the subject of international media in recent weeks as analysts warn of a potential default after the government asked investors for relief and the suspension of debt service payments for a period of six months.   

It has asked bondholders with around $3 billion in international bonds (the Eurobonds) to meet this month to approve the deferral of interest payments amounting to almost $120 million until April 2021. In doing so it is the first African country to ask bondholders for relief during the coronavirus pandemic.   

While many countries are struggling as a result of the current COVID-19 pandemic the Zambian economy was already on the edge before the coronavirus hit having seen a seven-fold increase in government debt over the past decade. Dr Ng’andu has told bondholders that Zambia’s debt now outstripped its assets at 104% of GDP - far above the IMF and World Bank thresholds of 35%.  

The situation has been worsened by the poor performance of the kwacha, which has been labelled the world’s worst performing currency this year.  

The government previously secured an eight-month debt freeze from some official lenders as part of the G-20 debt-suspension initiative launched in April. However, some are concerned that President Lungu's government is seeking debt relief in order to support political ambitions for re-election next year, rather than for the benefit of the majority of citizens.