By Maila Pride, Citizen Journalist
According to Reuters News Agency, debt restructuring involves negotiating with creditors to reduce interest rates, extend repayment terms, or decrease loan balances. The aim is to make debt more manageable by lowering monthly payments, reducing interest rates, or cutting the total amount owed.
In March 2024, the Government of the Republic of Zambia and the Steering Committee of the Ad Hoc Creditor Committee reached an agreement in principle on the key commercial terms of a proposed restructuring transaction for the country’s Eurobonds maturing in 2022, 2024, and 2027.
Background to Zambia’s Debt Restructuring Process
2019-2020: Debt Challenges Emerge
- Zambia faced difficulties repaying international bonds (“Eurobonds”) and other debts.
- In May 2020, the Zambian government, under President Edgar Lungu, hired French firm Lazard to advise on restructuring foreign debts, which were then officially estimated at $11 billion.
- Zambia requested debt payment freezes under the G20 Debt Service Suspension Initiative (DSSI) in June 2020 and defaulted on a $42.5 million Eurobond payment in November 2020, becoming Africa’s first pandemic-era sovereign defaulter.
2021: Transition of Leadership
- In August 2021, President Hakainde Hichilema’s government took office. The new Finance Minister revealed that Zambia’s external debt had risen to $17 billion, with debts to Chinese lenders nearly double the previous official figures.
2022-2023: Official Creditors Take Action
- In June 2022, an Official Creditor Committee (OCC) was formed to address Zambia’s debt, co-chaired by China and France.
- In July 2022, the OCC committed to providing debt relief, paving the way for a $1.3 billion International Monetary Fund (IMF) rescue package.
- By June 2023, the OCC agreed to restructure $6.3 billion of Zambia’s loans.
Late 2023: Challenges with Bondholders
- Zambia’s government reached a preliminary agreement with bondholders in October 2023 to consolidate $3 billion in Eurobonds into two instruments with extended payment terms.
- However, in November 2023, the OCC vetoed a revised deal with bondholders, citing insufficient debt relief. This caused bondholders to withdraw from negotiations, stalling progress.
2024: Renewed Efforts Bear Fruit
- In January 2024, Zambian officials traveled to negotiate with Chinese creditors, leading to restructuring agreements with India and China in February 2024.
- In March 2024, Zambia reached a deal-in-principle with private bondholders, marking a significant step toward resolving its debt crisis.
Current Status of Debt Restructuring
The 2024 agreement addresses Zambia’s Eurobonds:
- $750 million (due 2022)
- $1 billion (due 2024)
- $1.25 billion (due 2027)
Key aspects of the agreement include:
- Bondholders foregoing $840 million in claims.
- $2.5 billion in cash flow relief through reduced debt servicing payments during the IMF program period.
- New terms to attract investments, create jobs, and fund urgent priorities like disaster response.
Impact of Debt Restructuring on Citizens
Reduced Debt Servicing Costs
Zambia’s external debt repayments have historically consumed a large portion of the national budget, leaving limited resources for critical sectors:
- 2022: K51.3 billion spent on external debt servicing.
- 2023: K13.3 billion allocated to debt repayments.
Under the new agreement, funds previously used for debt servicing can now be redirected toward:
- Education: Recruitment of teachers and improvement of facilities.
- Healthcare: Procurement of medicine and recruitment of nurses.
- Infrastructure: Road construction and maintenance.
- Energy: Importation of electricity.
- Local Development: Increased Constituency Development Fund (CDF) allocations.
Potential for Economic Growth
The restructuring agreement is expected to stabilize the economy by creating an enabling environment for investments and growth, generating jobs, and reducing the cost of living.
Challenges Persist
Despite the positive strides, the cost of living remains high. According to the Jesuit Centre for Theological Reflection (JCTR), the Basic Needs and Nutrition Basket for a family of five in Lusaka rose to K10,701.13 in May 2024, a K352.87 increase compared to April 2024.
Conclusion
Zambia’s debt restructuring agreement is a critical step toward economic recovery. By easing the financial burden of external debt servicing, the government has the potential to channel resources into essential services that directly benefit citizens. However, the success of this process will be judged by its tangible impact on everyday life, including job creation, improved public services, and a reduced cost of living.
Citizens remain optimistic yet vigilant, expecting the government to ensure that the benefits of debt restructuring translate into meaningful improvements in their standard of living.
References
- Jesuit Centre for Theological Reflection (JCTR)
- Ministry of Finance, Zambia
- Parliament Budget Office
- Reuters News Agency