Zambia Debt Restructuring: What You Need To Know
On 22 June, Zambia announced that it had reached an agreement on comprehensive debt treatment according to the G20 Common Framework, just over 30 months after first defaulting on its debt. But what are the terms of the new debt arrangement?
How Much Does Zambia Owe?
Major bilateral creditors, including France and China, have agreed to restructure loans totalling to $6.3 billion.
Among the deals’ clauses was an obligation for “comparability of treatment for Zambia’s commercial debts”, guaranteeing that the $6.8 billion owed to private sector creditors would also be restructured according to the G20 Common Framework.
In total, $13.1 billion will be restructured under the deal.
How Will These Be Paid Off?
Zambia’s debts have been reorganised to be paid over a 20-year period with a three-year grace period. Zambia will only have to pay the interest rate on its loans until 2026, and will have until 2043 to conclude debt repayment, an extension of the previous deadline by 12 years.
Zambia’s rate of interest will be capped at 1% until 2037, and will rise to a maximum of 2.5% for the remainder of the loan. Zambia has been paying an average of 3.9% on its Chinese bilateral loans. Interest rates may rise to a cap of 4% if Zambia is upgraded from a low to medium debt carrying capacity.
Also included in the restructuring is a loan to cover the ongoing construction of the Kafue Gorge Lower hydroelectric powerplant.
What Does This Mean For Zambia
The deal also means that Zambia has fulfilled the requirements for the IMF to disburse its second instalment of $188 million agreed in April, which will be injected directly into the Zambian economy.
When President Hichilema returned to Lusaka’s Kenneth Kaunda International Airport, he said that the deal created the conditions necessary for Zambia to “rebuild confidence in our economy, attract foreign investment, and unlock the potential of our natural resources”.
Analysts expect Zambia’s bondholders to also strike a debt restructuring deal with the government in the coming weeks. This would secure a plan to pay back some $3 billion owed to private lenders. Optimism is particularly high after the bilateral debt deal saw the Zambian government pledge to speed up its repayments as the economy improves.