Zambia expects creditors to agree restructuring deal ‘in the next few days’

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Zambia’s President Hakande Hichilema has arrived in Paris, as the southern African country’s creditors including China reach an agreement to restructure its debts after years of delay.

Hichilema said on Wednesday that he would stand alongside his French counterpart Emmanuel Macron and Chinese Premier Li Qiang at a global finance and climate summit starting on Thursday – a sign that the Zambian leader is expected to meet “in the next few days”. Agreement is expected.

Africa’s second largest copper producer has been in financial trouble since its 2020 default. It has been unable to continue using the $1.3 billion IMF bailout as the country’s biggest lender China and other lenders clash over proposals to reduce the value of the $13 billion external debt by almost half.

The Zambian standoff has come to symbolize a wider rift between China and Western countries over the fundamentals of resolving sovereign debt crises from Sri Lanka to Ghana after Beijing’s rapid emergence over the past decade as the developing world’s biggest single-country lender Is.

The conclusion of the Zambian loan deal in Paris will raise hopes for other countries in talks to restructure Chinese loans, and be a coup for Macron’s ambitious effort to unlock climate and other financing for some of the world’s poorest countries. two day summit,

China has been reluctant to accept direct reductions of foreign debt by its banks, and in Zambia’s case it proposed that multilateral development lenders such as the World Bank take the unprecedented step of joining the restructuring. Other creditors have defended an established rule that these institutions avoid losses so they can continue lending at low rates.

A banker involved in the talks said an agreement between official creditors would be “real progress”, although a full restructuring of Zambia’s external debt would still require agreement among private creditors, such as holders of the country’s $3 billion Eurobonds. .

A debt investor involved in the talks said development banks are likely to provide concessional loans rather than loan waivers as a way to unlock the agreement.

Due to domestic financial stability concerns, Zambia has excluded its local currency bonds, even foreign holdings of this debt, from restructuring. Some creditors say the latter should be included. Others have said that current targets to enable debt relief, such as the ratio of debt to exports, are too pessimistic.

Foreign buyers of Zambia’s domestic public debt have reduced their holdings from $3.2 billion to less than $2 billion since the end of last year, the investor said, amid fears that domestic borrowing could be included in a restructuring similar to that of Ghana and Sri Lanka. May go.

The finance ministry said last October that servicing those holdings would consume about 80 per cent of the funds available to service external debt. The investor said a sharp reduction in the foreign share of domestic debt would free up more money for other creditors, including China, thereby opening the door for deals.

A credible deal to iron out disagreements over the scope of debt relief would allow the IMF to resume disbursing funds to Zambia under bailout, such as a $188 million payment that was halted earlier this year.

“For China, the end game appears to be a solution that limits its financial losses, while also spreading blame more widely for that perilous and destabilizing situation,” said Ishwar Prasad, professor of economics at Cornell University. in which many highly indebted economies find themselves.”