Zambia’s Debt Restructuring to Result in $7.7 Billion Savings by 2026- IMF

The International Monetary Fund (IMF) announced on Friday (July 14, 2023) that Zambia’s long-awaited external debt restructuring will lead to savings of $7.65 billion for the country by 2026.

This statement was made by the IMF in a report following the approval of the latest disbursement from a $1.3 billion rescue loan.

In September, the IMF had stated that the anticipated amount was slightly lower than the $8.4 billion debt relief initially required by Zambia. Bilateral creditors, including China and international bondholders, had contested the size of the debt cuts involved.

According to the IMF staff report, the debt restructuring will cover 72% or $7.65 billion of Zambia’s balance of payments gap between 2022 and 2025.

By the end of 2022, Zambia’s external debt had reached $20.9 billion.

On Thursday, the IMF’s executive board approved an immediate disbursement of $189 million to Zambia after completing its first program review.

This development followed Zambia’s agreement in June with official bilateral creditors, such as Paris Club members and China, to restructure approximately $6.3 billion of its external debt.

During the COVID-19 pandemic in 2020, Zambia became the first African country to default on its sovereign debt and faced significant delays in debt restructuring negotiations.

The IMF report mentioned that Zambia’s official creditor committee held seven meetings since its formation in June 2022 and conducted several technical workshops. Points of contention included the exclusion of overseas local bondholders from the debt restructuring.

The report also stated that foreign holdings of domestic debt decreased from 29% at the end of 2021 to 22% a year later. This proportion was maintained in the first third of 2023.

The uncertainty surrounding the debt restructuring process resulted in a significant decline in investor demand for domestic government securities, according to the report.

A solution emerged during the third official creditor meeting in January, which involved the use of a contingent debt instrument. Under this arrangement, Zambia will pay more if its economy performs better. The agreement was finally reached on June 22.