On Saturday, October 14th, Zambia inked a memorandum of understanding (MoU) with its bilateral creditors, laying down a framework to restructure approximately $6.3 billion of debt, a significant step nearly three years after the country defaulted on its debt.
The southern African nation, which was the first on the continent to default on its debt during the COVID-29 pandemic, had agreed on broad terms to rework the debt with official creditors, including China and members of the Paris Club of creditor nations, back in June.
The finance ministry revealed that each official creditor would now commence their internal processes to sign the MoU. Subsequent to the signing of the MoU, the new terms will be put into effect through bilateral agreements with each member of the Official Creditor Committee (OCC). The agreements are set to include an average extension of debt growth of over 12 years, with interest rates pegged at 1% during the next 14 years and up to 2.5% thereafter. A mechanism to augment payments has also been established should Zambia’s economy outperform expectations.
Zambia is slated to pay about $750 million in the upcoming decade, a stark contrast to the almost $6 billion due to official creditors before the debt restructuring. Finance Minister Situmbeko Musokotwane emphasized, “The next step is to secure a comparable agreement with our private creditors.” Zambia has committed to remaining in arrears to its commercial external creditors until a debt deal with comparable terms to the official creditor agreement is secured.
The copper-producing nation’s commercial creditors, who are owed more than $3 billion in overseas bonds, are currently in formal discussions with a bondholder creditor committee to restructure their debt. The talks, which commenced earlier in October, have temporarily restricted the creditors from trading the country’s notes. Zambia has three outstanding dollar bonds maturing in 2022, 2024, and 2027, currently trading at 52-58 cents on the dollar.
The timeline for signing agreements between Zambia and each bilateral creditor remains to be determined. Musokotwane expressed gratitude towards all official creditors for their commitment to resolving Zambia’s debt overhang. The IMF Managing Director, Kristalina Georgieva, mentioned on Thursday, October 12th that Zambia had signed the MoU with official creditors, a statement later retracted by Zambia’s finance minister and the IMF as they continue to solidify the framework of the MoU.
