What Does Debt Restructuring Mean For Zambia?

After Zambia defaulted on its Eurobonds in 2020, the country has been working to secure debt restructuring deals with various creditors. At the end of March, President Hichilema struck a preliminary deal restructuring K74 billion of international bonds.

Debt restructuring involves renegotiating terms with creditors to make debt repayments more sustainable. The process of restructuring began in 2020 with Zambia appointing financial and legal advisors to facilitate discussions with creditors. In January 2021, the country formally requested debt treatment under the G20 Common Framework, signaling the initiation of negotiations with both official creditors (countries and multilateral institutions like the IMF) and private lenders (banks and businesses).

Recent milestones include the attainment of a comprehensive debt treatment plan with the Official Creditor Committee (OCC) in October 2023. On March 25, 2024, an preliminary agreement was achieved with Eurobond holders, marking a significant stride towards debt sustainability.

To complete the debt restructuring with bondholders, the Zambian Government and the Bondholder Steering Committee must finalise legal paperwork for the new bonds. Afterward, an offer will be sent to all Eurobond holders, asking for their agreement to the new terms. The success of the restructuring depends on how many bondholders participate – if at least 75 percent of the bonds' value is represented, the new terms apply to all bondholders automatically. To encourage participation, the government is offering a consent fee of 1.5 percent of the original bond value to those who volunteer early for the exchange. The government is expecting the debt restructuring to be fully resolved in the first half of 2025. 

Crucially, there are no additional fiscal resources as a result of the restructuring. The debt restructuring supports the government's efforts to make its debt manageable. This helps the government continue with its plans, including those outlined in the IMF program, while still meeting payment obligations to creditors. By ensuring that future debt payments can be covered by existing and projected revenues, macroeconomic stability can be restored. Once this occurs, confidence in the country will be boosted making private sector investment increase. It will also improve sovereign credit ratings, and reduce financing costs for the country.

The agreement is one step towards Zambia’s economic recovery, but it must occur in tandem with the implementation of careful macroeconomic policies and expediting economic and structural reforms to improve governance, create jobs, and promote growth.

Once the debt restructuring is implemented, Zambia will exit the selective default it entered in 2020 and work to improve its credit rating in the future. In order for this to occur, the county must prioritise its economic health and maintain political stability.