Zambia’s Debt Restructuring Programme in Limbo

By Kalata News,

LUSAKA – Bondholders to Zambia’s foreign debt have rejected the deal reached between the Zambian and International Monetary Fund (IMF) saying it does not meet their long term expectations.

This puts Zambia’s debt restricting process in disarray.

In a meeting on Friday 17th November, the Bondholders concluded that the Zambia-IMF agreement was not comparable with the debt treatment granted to Zambia by the Bondholders.

The Bondholders further advised that there was no consensus among their membership as to the magnitude of additional concessions that would be required from Bondholders in the IMF agreement to comply with the needs of the Bondholders.

After being notified of the outcome of the consultations with the OCC, the Steering Committee confirmed that any additional concession on their part was not possible.

In a statement issued recently, the bond holders led by China stated that the agreement “was not in compliance with the Comparability of Treatment in the Base Case scenario due to a shorter extension of the duration and lower contribution to the closing of the balance of payment financing gap during the IMF program period.”

According to a BBC report, following months of talks, Zambia had successfully agreed new repayment terms with its state creditors on up to $6.3bn (£5bn) debt, including over $4bn owed to China. There had been frustration for Zambia as negotiations have been slow, with some blaming China for the delay – something that Beijing denied.

In June this year, The Zambian authorities and the IMF team reached a staff-level agreement on economic policies to conclude the second review of the 38-month Extended Credit Facility -supported program (ECF) which once approved will make Zambia have access to about $184 million in financing (SDR 139.9 million).

“The Government of the Republic of Zambia (the “Government”) announces today that, following the agreement in principle (“AIP”) reached with the Steering Committee of the Ad Hoc Group of Bondholders (the “Steering Committee”) on 26th October, the authorities and their advisors conducted consultations with the country’s Official Creditor Committee (the “OCC”) and the staff of the International Monetary Fund (the “IMF Staff”).

“The OCC, through its Co-chairs, concluded that Comparability of Treatment would not be achieved in the Base Case scenario, although would be achieved in the Upside Case scenario. The OCC stated that the AIP, despite similar present value concessions to the deal agreed between the Government and the OCC, was not in compliance with the Comparability of Treatment in the Base Case scenario due to a shorter extension of the duration and lower contribution to the closing of the balance of payment financing gap during the IMF program period.”

The Zambian Government stated said that “the fact that bondholders have agreed to nominal face value concessions (“haircut”), while the OCC members have not, is not considered a mitigating factor since the haircut is not part of the criteria listed in the G-20 Common Framework to assess Comparability of Treatment.”

In addition, the IMF Staff assessment showed that the AIP with bondholders would breach the DSA targets. The debt service-to-revenues ratio would reach 16.7 percent in 2025, 2.7 percentage points higher than the 14 percent target, while the present value of the debt stock-to-exports ratio would be marginally breached (by 1 percentage point), at 85 percent in 2027.

This development puts a strain on Zambia’s decentralisation process and pro-poor programming that have seen the country introduce free education policy across the country, increase constituency development fund and embark of massive recruitment of civil servants in the teaching and Zambia Defense force.

Says the Zambian Government, “in light of these reservations, the Government and the Steering Committee continued their engagement over the past week and discussed possible amendments to the AIP. During these discussions, the Steering Committee made a revised proposal attached hereto as Annex A (the “Revised Proposal”), which the Government has duly considered. The Government views the Revised Proposal as compatible with the objective of restoring debt sustainability and with the principle of Comparability of Treatment.”

“The Government regrets that discussions with bondholders have not yet yielded an agreement that could be supported by all of its stakeholders.  The Government is committed to continuing its efforts to find a satisfactory solution that avoids further costly delays in completing the country’s debt restructuring. In this context, the Government intends to continue discussions in good faith with all relevant parties on how it can reach a successful and comprehensive debt restructuring. Annex attached here,” says the Zambian Government statement on the debt restructuring situation.