Zambia will need official creditors led by China and France to agree to a debt-relief deal before the International Monetary Fund signs off on funding of about $188 million to the southern African nation, where restructuring delays have already knocked its currency and fanned inflation.
(Bloomberg) — Zambia will need official creditors led by China and France to agree to a debt-relief deal before the International Monetary Fund signs off on funding of about $188 million to the southern African nation, where restructuring delays have already knocked its currency and fanned inflation.
The US and the World Bank have repeatedly blamed China for holding up the process, while officials from the world’s second-biggest economy have called for multilateral lenders to join its creditors in providing debt relief to Zambia.
The IMF holding back on a disbursement may pile pressure on its official creditors to sign a long-awaited memorandum of understanding on restructuring Zambia’s debt.
IMF staff led by Allison Holland concluded a mission to Zambia as part of the first review of the nation’s $1.3-billion program. This was to assess Zambia’s compliance with the plan in order to unlock the second disbursement of funds, after the board approved the rescue package on Aug. 31, with the immediate availability of an initial $185 million payment.
“An agreement with official creditors on a debt treatment in line with program parameters would provide the needed financing assurances” for the IMF’s board to approve the next disbursement of about $188 million, Holland said.
Zambia’s dollar-denominated debt due July 2027 fell 0.33 cents on the dollar to trade at 44.11 by 1:30 p.m. in London, according to CBBT pricing. The kwacha gained 1% against the dollar.
Further delays to the nation’s debt restructuring will limit eurobond-price gains at this stage, said Samantha Singh, senior markets strategist at Rand Merchant Bank in a note to clients.
Zambia’s currency has plunged 8% this year because of the stalled talks. That’s stoked inflation, which is at a three-month high of 9.9%, and dampened business confidence.
The deterioration in Zambian business conditions was the most pronounced since September 2020 last month, Stanbic Bank said in a statement Wednesday, commenting on the March Purchasing Managers’ Index.
Under the IMF program, the nation’s authorities committed to finalizing the MOU with official creditors by the first review. That hasn’t happened, despite Zambia having done all it needs to reach a deal.
“The ball is truly in the court of the creditors,” IMF Managing Director Kristalina Georgieva said last month.
Finance Minister Situmbeko Musokotwane said in a statement that Zambia is still optimistic that it will soon reach an agreement on debt restructuring. “This will help us achieve economic recovery and attain sustainable growth,” he said.
Zambia also committed to reaching agreements on comparable terms with other creditors at the latest by the time of the second review, due Oct. 1. Bondholders are pushing back against assumptions of the World Bank/IMF debt sustainability analysis that assesses the quantum of relief the government requires, according to the bank’s Africa’s Pulse report published this week.
“It is essential that we continue to access IMF funding to anchor our reform agenda and invest in development. It is in everybody’s interest that Zambia succeeds,” Musokotwane said.
–With assistance from Colleen Goko.
(Updates with bond and currency movements in paragraph six)
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