QUESTION AND ANSWER ON: ZAMBIA REACHES AGREEMENT WITH OFFICIAL CREDITORS ON DEBT TREATMENT UNDER THE G20 COMMON FRAMEWORK

On the 22nd of June 2023, the Government of the Republic of Zambia announced that it reached an agreement on a comprehensive debt treatment with its Official Creditors under the G20 Common Framework. This landmark achievement is a significant step towards restoring Zambia’s long-term debt sustainability. It complements the strong commitments from Zambia’s Multilateral Development Partners to support the country’s economic recovery through substantial concessional financing.  

This page contains answers to frequently asked questions about the agreement. The Ministry will be providing more information to all stakeholders in due course. For further questions not addressed below, please address them to treasurybriefs@mofnp.gov.zm.  

What is the agreement and what does it mean for Zambia’s debt restructuring?

Reaching an agreement on debt treatment with Zambia’s official creditors is an important milestone in the debt restructuring process. This agreement is expected to pave the way for the IMF Executive Board to approve the first review of the Fund-supported program in the coming weeks, allowing for the next tranche of IMF financing of about US$188 million to be disbursed. This financing will further bolster Zambia’s economic recovery and reform agenda.

What happens next?

Now that an agreement has been reached, the terms will be further described and formalized in a Memorandum of Understanding between Zambia and its official creditors, which will then be implemented through bilateral agreements with each member of the Official Creditor Committee.

This agreement also supports Zambia’s ongoing engagement with private creditors, including bondholders, with whom we remain committed to finding an agreement on comparable terms as early as possible to decisively resolve the issue of Zambia’s debt overhang. These productive conversations are ongoing, and we are hopeful that an agreement can be swiftly reached.

How much of Zambia’s debt has been written off?

The agreement covers $USD 6.3 billion in outstanding debt Zambia owes to its official bilateral creditors and delivers an economic reduction of close to 40%.

This is achieved through a significant maturity extension (with a final maturity beyond 2040representing an average extension by more than 12 years), and a reduction in interest rates. Interest rates will be set at only 1.0% during the next 14 years and will not exceed 2.5% thereafter under the baseline scenario.

The maturity extensions under the agreement will generate about $USD 5.0 bn in debt service savings between 2023 and 2031. Zambia will pay its official creditors about $USD 750m in the next decade, compared to close to $USD 6.0 bn that was due under our previous contractual arrangements.

The agreement includes an adjustment mechanism that provides for an accelerated repayment schedule (final maturity will be reduced by 5 years) and higher interest rates if Zambia’s capacity to service external debt improves in the future.

What does this debt restructuring agreement mean for the 2023 national budget?

Assuming the agreed terms are promptly implemented, the debt treatment is likely to reduce our budget deficit by about 1% of GDP. This will allow the Government to improve our fiscal trajectory and credit standing, thereby giving additional fiscal breathing space for the implementation of our development agenda.

This landmark agreement will also significantly alleviate Zambia’s debt servicing burden in the medium term, providing the fiscal space required to allocate more resources for critical public investments, particularly in areas such as healthcare, education, and infrastructure development.

 

This agreement is complemented by large new inflows of multilateral financing as part of our IMF programme, ensuring that every one of our international partners contributes to our economic recovery and enhanced economic resiliency

What did we agree to with China?

As Zambia’s largest official creditor, China played its part as a full member of the OCC under the same constraints as other creditors per the G20 Common Framework for Debt Relief. Zambia commends the leadership of China along with France and South Africa, acting as co-chairs and vice-chair of the Official Creditor Committee. The agreement applies uniformly to all our official creditors, and no state asset has been pledged as part of the agreement.

What does this proposal mean for the treatment of bondholders, both Euro and local?

Zambia continues to engage in constructive discussions with external private creditors with the goal of reaching a comparable agreement as soon as possible. The Government is encouraged by the progress made over the recent weeks with our private creditors and we hope to reach an agreement soon.

Domestic debt with respect to Treasury Bills and Bonds will not be restructured. This is essential to preserve financial stability and ensure a well-functioning domestic debt market.

With this debt restructuring agreement, can Zambia still borrow?

This agreement does not contain any specific additional restriction on Zambia’s future borrowing. We will continue to respect the conditions set under the IMF programme. The Government is committed to carrying out a prudent debt borrowing strategy, focusing on multilateral and domestic financing during our IMF programme. This deal will pave the way for a gradual and prudent return to other forms of external borrowing post-program, with the sole objective of meeting our development needs and growing the country’s export base.

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