Zambia’s Debt Crisis: A Light at the End of the Tunnel

Zambia finally found a way to tackle its debt crisis after three long years. Last month, the country reached an agreement with its creditors to restructure around $6.3 billion of debt. This is a big relief for Zambia, as it became the first African country to default on its debt during the pandemic. The restructuring process started in June when the Finance Ministry made preliminary agreements with its official creditors, including China and members of the Paris Club. Now, each creditor will go through internal processes to finalize the agreement. The terms of the agreement include extending debt maturities by an average of 12 years and implementing a structured interest rate that starts at 1% and gradually increases to 2.5% over 14 years. If Zambia’s economy performs well, it may even have to make increased payments. The country will now only have to pay around $750 million over the next decade, a significant reduction from the nearly $6 billion it owed before the restructuring. The next important step is to reach a similar agreement with private creditors, such as international bondholders. Zambia is currently in discussions with a bondholder creditor committee to restructure over $3 billion of overseas bonds. Negotiations started last month, and during this time, trading of Zambia’s bonds has been restricted. Zambia has three dollar bonds that are maturing in 2022, 2024, and 2027, and they are currently trading at a value between 52 and 58 cents on the dollar. While it is uncertain how long it will take to finalize agreements with individual creditors, the government is determined to secure a deal with private lenders that aligns with the terms of the agreement with official creditors. The Finance Minister, Situmbeko Musokotwane, expressed gratitude to China, France, and South Africa for their commitment to resolving Zambia’s debt challenges. Despite a small hiccup during the signing of the agreement, Zambia seems to be on the path to financial recovery.