Zambia Agrees Final Stage of Debt Deal

On Saturday the government reached a memorandum of understanding (MoU) with its bilateral creditors to restructure around $6.3 billion in debt, unchaining the country from exorbitant repayments and freeing up additional government funding for social programs and infrastructure projects.

Zambia became the first African country to default on its debt during the pandemic era. The debt restructuring initiative began in June with the country agreeing to general conditions for adjusting its debt with official creditors, which encompassed China and other members of the Paris Club of creditor nations.

"Each official creditor will now begin their internal process to sign the MoU. Following the signing of the MoU, the terms will be implemented through bilateral agreements with each member of the OCC (Official Creditor Committee)," the Ministry of Finance said in a statement.

These agreements will involve extending the maturity of the debt for an average period of over 12 years. During the next 14 years, interest rates will be fixed at 1%; subsequently they may rise to a maximum of 2.5%. Furthermore, there is a provision in place to increase payments, should Zambia's economy perform better than anticipated.

Over the next ten years, Zambia is set to make payments of approximately $750 million, a significant reduction compared to the nearly $6 billion owed to official creditors prior to the debt restructuring.

Situmbeko Musokotwane, Zambia’s finance minister, stated: "the next step is to secure a comparable agreement with our private creditors."

The Ministry also said that Zambia is dedicated to maintaining its unpaid debt to commercial external creditors until it successfully negotiates a debt agreement with terms that align with those of the official creditor agreement.

Zambia's commercial creditors include international bondholders, to whom the country owes over $3 billion. The nation is currently engaged in formal negotiations with a committee of bondholder creditors to restructure more than $3 billion in foreign bonds. These discussions began in early October, temporarily halting the trading of the country's bonds. Zambia has three outstanding dollar bonds maturing in 2022, 2024, and 2027, which are presently trading at 52-58 cents on the dollar.

The exact timeline for finalizing agreements between Zambia and each bilateral creditor remains uncertain.

Finance Minister Musokotwane expressed gratitude to the official creditors, with special mention to the co-chairs of the committee, China and France, as well as vice-chair South Africa, for their dedication in resolving Zambia's debt issues.