Zambia’s US $ 6.3bn debt restructuring deal brings hope for indebted nations

BBC: Zambia’s President Hakainde Hichilema can finally breathe a sigh of relief as the outlines of a deal aimed at lifting his country out of its debt crisis have been unveiled.

In 2020, the copper-rich country became the first African nation to default on its debt payments during the Covid pandemic. It was burdened by loans and high interest rates that severely restricted the government’s ability to invest in critical social programmes and infrastructure development, both crucial for economic growth.

Following months of talks, Zambia has now successfully agreed new repayment terms with its state creditors on up to US $ 6.3 billion (£5 billion) debt, including over US $ 4 billion owed to China.

There had been frustration for Zambia as negotiations have been slow, with some blaming China for the delay - something that Beijing denied.

France’s President Emmanuel Macron, who played a pivotal role in persuading China to agree, hailed the deal as “historic”. It is thought that it could pave the way for other debt-ridden countries to follow suit.
“But the hard work is not over yet,” Hichilema said on Twitter, recognising that the more than US $ 6 billion owed to private lenders still needs to be tackled.

His election in 2021 was partly based on a promise to tackle the country’s financial woes, inherited from his two predecessors, Michael Sata and Edgar Lungu, who had allowed Zambia to take on significant loans to finance infrastructure projects.

Though some of that money was invested, it is thought that a lot was lost to corruption.

While a bailout agreement had already been reached with the International Monetary Fund (IMF), Zambia needed to restructure its debt to unlock much-needed funds. 

This debt restructuring process is a critical step toward regaining financial stability, fostering sustainable growth, and safeguarding the well-being of its citizens.

Although the details of the deal have not yet been released, it appears that Zambia will be granted an extended repayment time of over 20 years, including a three-year grace period with interest-only payments.

Experts have praised the government for securing the agreement and are hopeful that this will improve Zambia’s economic situation.

Economist Isaac Mwaipopo, from the think-tank the Centre For Trade Policy and Development, believes it will help inspire investor confidence, but urges the government to follow an economic recovery plan.

“There’s a need to come up with a clear plan in terms of reconstructing the economy, especially that we will still be on an IMF programme for the next three years. It will be very important that sectors are identified which can be strategic for growth, boosting job creation and aiding poverty alleviation.”