Zambia sees scope for $12.8 billion debt-revamp deal next week
Zambia is a step closer to a long-awaited debt-restructuring agreement, with its official bilateral creditors set to meet April 18 after key roadblocks were resolved, the nation’s treasury secretary said.
The creditors — the largest of which is China — will likely meet next week as most outstanding issues “are being addressed,” Felix Nkulukusa said in an interview in Washington Wednesday.
The nation is seeking to revamp $12.8 billion in loans held by creditors including Chinese state-owned banks and eurobond holders. As the list of low-income nations struggling to service debts with rising interest rates grows, Zambia is a crucial test case of how new lenders like China can work with traditional bilateral creditors and bondholders to restructure liabilities.
The main hurdles to a deal were around multilateral development banks, or MDBs, sharing the burden with bilateral creditors, as well as the involvement of foreign residents holding the nation’s local-currency bonds. The 49% reduction in the present value of their loans that Zambia’s asking creditors to accept has also caused friction.
“One such issue is the question of the fair burden sharing by the MDBs, and we have seen that the MDBs have come on board,” Nkulukusa said, adding that the African Development Bank, International Monetary Fund and World Bank have made commitments.
Likewise, the amount of domestic debt that foreigners hold has fallen to about $2.1 billion from $3.3 billion previously, he said. The next milestone is for the official creditors committee to sign a memorandum of understanding with the government over the restructuring.
Zambian officials’ hope is that discussions at the creditors’ committee meeting can evolve from questioning the assumptions and parameters in the debt-sustainability analysis to starting a discussion on how to deliver a restructuring, said Nkulukusa, who spoke on the sidelines of the IMF spring meetings.
“If they agree to start discussing the MOU, then of course we go into the discussion” and then the signing, he said. “On the other side, we’re also engaging the bondholders and the private creditors. We are hoping that they would be able to come on board and then we can also agree with them under the comparability-of-treatment conditions.”
Still, it’s not certain that the committee — co-chaired by China and France — will be able to reach a consensus that has already taken months since the body formed in June.
“We don’t know whether they’ll agree in this meeting,” said Nkulukusa. “Once we do that engagement, then our colleagues would be able to come on board and say, ‘yes, we can move ahead, or probably there are few adjustments that we need to make in there.’ And we have that discussion. So it is mostly in the hands of the official creditors’ committee.”
