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Zambia reached a staff-level agreement with the International Monetary Fund (IMF) over a bailout that will pave the way for negotiations with creditors to restructure about $16bn in external debt.

The deal for about $1.4bn in funding must still be approved by the Washington-based lender’s executive board but it’s a big step forward for the nation that became Africa’s first pandemic-era sovereign defaulter a year ago. The agreement was confirmed by the IMF on Friday.

Zambia first signalled plans to approach the IMF for assistance in 2014, followed by years of on-again, off-again talks. A programme is now crucial for the government to press ahead with creditor negotiations under the Group of 20’s so-called Common Framework for debt restructuring.

“This agreement is based on the authorities’ plans to undertake bold and ambitious economic reforms,” Allison Holland, the IMF’s mission chief for Zambia, said in an emailed statement.

Zambia, the continent’s second-biggest copper producer, borrowed heavily for a decade to finance an ambitious infrastructure programme as well as to pay for energy and farm subsidies. Government debt was at 129% of GDP in 2020, according to the IMF. 

The former government of then-president Edgar Lungu stopped servicing almost all dollar debt in October 2020. 

Hakainde Hichilema, who was elected in August, has vowed to bring the state’s finances under control, with IMF board approval for the loan in the first quarter of 2022 seen as key to those plans. 

The government will then begin negotiating with external creditors in the second quarter, according to Finance Minister Situmbeko Musokotwane. Lazard Freres SAS and White & Case LLP are advising Zambia on the restructuring. 

Key obstacles to winning IMF support in recent years included a lack of transparency regarding borrowing, as well as the government selling fuel and power to consumers at prices lower than cost. 

There is room for more efficient state agricultural support, and wealthier people tend to be the biggest beneficiaries of fuel and electricity subsidies, Allison Holland, IMF mission chief to Zambia, said in a webcast on November 10.

In October, Zambia published a full list of its 44 external creditors that showed the central government owes Chinese lenders more than one-third of its total $13.4bn of foreign-currency debt. The long and diverse list of creditors, which also includes holders of its $3bn in eurobonds, shows how complex Zambia’s planned debt restructuring talks are likely to be.

More stories like this are available on bloomberg.com



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