Zambia Leads On Debt Crisis Ahead Of Budget

Concern regarding Zambia’s debt position has been the subject of international media this week as analysts warn of a potential default in the coming weeks. 

The news comes as 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 next 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.

The government has cited a combination of declining revenues and increased unbudgeted costs cause by the COIVD-19 pandemic. However, debt was already on course to exceed 100% of GDP and the need for a debt restructuring exercise has been evident for some time. 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. 

Minister of Finance Dr Bwalya Ng’andu is scheduled to present the 2021 budget on Friday, which could contain further detail into the government’s debt restructuring plans.