Zambia‘s debt restructuring has been a complex three-year process, which suffered a serious setback on Monday when bilateral creditors, including China, effectively ordered the country to secure further debt relief from international funds that hold its sovereign bonds.
Below is a condensed timeline of key events:
2019-2020: Zambia faced challenges in repaying its debts, including its dollar-denominated government bonds in the international market, known as “Eurobonds”.
2020: The country requests a freeze on its debt payments under the G20-led Debt Service Suspension Initiative (DSSI) due to COVID-19.
In May, the government of Zambia’s President, Edgar Lungu, hires the French company Lazard to advise on the restructuring of the cash-strapped southern African country’s $11 billion in foreign debt.
In November, Lungu’s government failed to pay $42.5 million on one of its international obligations, making it the first sovereign country in Africa to default.
2021: Opposition leader Hakainde Hichilema secures a landslide victory in August over Lungu in the presidential election.
June 2022 – Governments that have lent to Zambia over the years form an “official sector” Committee of Creditors – or OCC for short – to formally begin work on restructuring the loans they have extended to the country.
2022: Negotiations continue with private bondholders for debt relief and restructuring agreements.
2023: In June, the government announces the “Paris Club” of creditor countries and its other major bilateral creditor, China, have agreed to restructure their loans worth a combined $6.3 billion. Just over $4 billion of that money is owed to the Export-Import Bank of China, underlining the importance of Beijing’s support for the deal.
In October, the government reached an “Agreement in Principle” with investment and pension funds that hold $3 billion in sovereign bonds that it sold on global capital markets.
The agreement proposes consolidating this debt into two bonds with easier terms and longer payment terms, but also offering faster additional payments if the country’s economy performs well.
November – The deal takes a major blow after the government claims that the “OCC” of official creditors led by France and China, and including the IMF, effectively vetoed the deal between the Zambian government and private bondholders, claiming that it doesn’t offer enough debt relief.
Angry private bondholders say the OCC is demanding debt relief from them that is materially greater than what the Zambian government or the International Monetary Fund deems necessary.
Currently the situation is in limbo, with no prospect of a solution. Meanwhile, Zambia is going through a serious financial crisis with repercussions on the economy and the worsening of poverty in the country.