Zambia’s government presented its official creditors with plan for getting its debt under control on Thursday, requesting assurances of help from them in order to unlock an International Monetary Fund support programme.
Zambia, which is seeking relief on more than $17 billion of external debt, held its first meeting with official creditors on Thursday, and the International Monetary Fund urged Zambia’s them to give assurances on their “treatment” of the southern African country’s debt as a precondition of its support.
“(The) government presented to the official creditors the path envisioned for reaching debt sustainability and the support that will be needed from international partners, including initial assurances of debt treatment,” the Finance Ministry said in a statement after the virtual talks with creditors in Paris.
The restructuring is being conducted under a new common framework supported by the Group of 20 major economies and is being closely watched as it will likely set a precedent for other similarly distressed countries. Zambia became Africa’s first pandemic-era default in November 2020.
Under the G20 framework, the priority is meant to be on maturity extensions on debt, while haircuts are reserved for exceptional cases, and officials involved in the negotiations have not said what type of restructuring is on the table.
Underscoring the challenges it faces, Zambia on Thursday made a surprise move to extend its fuel subsidy. The eventual scrapping of the subsidy is a condition of receiving debt support, including a $1.4 billion three-year extended credit facility agreed at IMF staff level in December.
Explaining the move, Energy Minister Peter Kapala said in a statement: “Though government policy is not to subsidise fuel imports … the government is also acutely aware of the impact that unfettered fuel price hikes cause.”
IMF Deputy Managing Director Antoinette Sayeh visited Zambia on Wednesday to discuss the support programme, which Zambian officials hope to start in September, and Finance Minister Situmbeko Musokotwane said major creditors were willing to discuss debt restructuring. Read full story
“We look forward to continued engagement with the Fund as we negotiate with our creditors and seek a solution to the debt crisis facing our country,” Musokotwane said in a statement.
Sayeh earlier on Thursday described Zambia’s implementation of its economic programme as impressive.
As well as scrapping the fuel subsidy, other efforts to impose discipline on public spending include slashing handouts to agriculture but also re-directing some of that money to education and health.
“We urge creditors to provide financing assurances as soon as possible, as they are needed before staff can put forward Zambia’s program,” she said.
Zambia’s foreign debt is owed to bondholders, sovereign bilateral lenders and multilateral institutions.