African Reserves Loans

Zambia’s debt relief will combine haircuts and maturity extensions

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LUSAKA, September 1 (Reuters) – Zambia’s debt restructuring will consist of a mix of haircuts on the initial value of loans and maturity extensions, a senior Zambian finance ministry official said on Thursday, after the Fund has approved a $1.3 billion program for the southern African country.

Negotiations with creditors to restructure the debt which reached $17 billion at the end of 2021 are now starting, Mukuli Chikuba, permanent secretary at the Ministry of Finance, told a joint Zambian government-IMF press conference in Lusaka. the Zambian capital.

IMF Executive Board approval, a crucial step in the Southern African country’s quest to restructure its debts and rebuild an economy ravaged by mismanagement and COVID-19, would unlock an immediate disbursement of about 185 million, the Fund announced on Wednesday. Read more

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Zambia has become the first African country to default in the pandemic era in 2020, struggling with debt that has reached 120% of its gross domestic product.

“The choice between haircuts and extending the repayment period…is a matter of negotiation. And that negotiation will reflect the preference of the particular creditor,” said Zambian Finance Minister Situmbeko Musokotwane.

Some creditors “will choose to get their money sooner,” he said. “Others will choose not to get a haircut but get the money to pay over a longer period of time.”

China, Zambia’s largest bilateral creditor, holding $5.78 billion of its debt at the end of 2021 according to Zambian government data, has tended to opt for longer loan repayment periods in further restructurings, rather than writing down the initial value of the loan.

Zambian officials declined to comment on how Chinese loans would be restructured, noting negotiations were ongoing.

The IMF’s debt sustainability analysis, which will form the basis of debt restructuring negotiations with Zambia’s creditors, will be released early next week, IMF representative Preya Sharma said during a meeting. of the press conference.

The outlook for Zambia is more positive, but the government still needs to do more, Sharma said.

The $1.3 billion IMF loan has a zero interest rate, she said.

Half of the IMF loan will be used for fiscal support and the other half for the country’s reserves, central bank governor Denny Kalyalya said, with price stability and building up international reserves a priority.

Even after restructuring its debt, the level of service will still be “substantial”, Musokotwane said.

He said, however, that confidence and exchange rate stability had returned to the economy.

Now that Zambia is part of the IMF program, future borrowing would only be on concessional terms, Treasury Secretary Felix Nkulukusa said.

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Reporting by Chris Mfula; Additional reporting by Bhargav Acharaya Writing by Rachel Savage and David Lawder Editing by James Macharia Chege, Tomasz Janowski, Peter Graff

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