By Chris Mfula
LUSAKA (Reuters) -The International Monetary Fund has reached an understanding in principle with China about a debt restructuring strategy that could help resolve Zambia’s debt crisis, its chief said on Tuesday in Lusaka.
Kristalina Georgieva made the comments on the final day of a three-day trip to Zambia which secured an IMF loan programme last August after it became the first African country to default on its sovereign debt during the COVID-19 pandemic.
“Zambia has done its part under the IMF programme and the country has performed really strongly, and now it’s time for creditors to do their part,” Georgieva said during a public discussion at the University of Zambia.
She said at a later event that she was confident a restructuring agreement would be reached.
China is owed almost $6 billion by Zambia and is its largest bilateral creditor. Zambia’s total external debt stood at $17 billion as of June last year, government data shows.
“We have reached an understanding in principle that China will de facto accept NPV (net present value) reduction on the basis of significant stretching of the maturities and reduction of interest,” Georgieva said during a question-and-answer session at the University of Zambia.
“In China there is not yet a consensus to take upfront haircuts. Why? Because China thinks of itself as a country still having quite a lot of development challenges,” she said.
She later told reporters that she had been speaking about debt restructuring talks in general, not just about Zambia.
“We have had engagements with China at the highest level and they demonstrate that China wants to act in a multilateral context, basically the Common Framework,” she said.
A debt deal for Zambia would also be dependent on international funds and financial institutions, just 15 of whom hold more than 45% of Zambia’s outstanding Eurobonds.
These private sector bondholders see the discretionary elements in the IMF’s calculations on how much debt Zambia can sustainably afford as a major stumbling block to a deal — and one that would not necessarily be resolved by a breakthrough with China.
On Monday, Georgieva met Zambian President Hakainde Hichilema and praised moves to curb wasteful expenditure.
U.S. Treasury Secretary Janet Yellen, also visiting Zambia this week, said on Monday she believed progress could be made restructuring Zambia’s debt after frank talks last week with China.
Responding to comments by Yellen that China had been a barrier to resolving Zambia’s debt issues, the Chinese embassy in Zambia said “the biggest contribution that the U.S. can make to the debt issues outside the country is to … cope with its own debt problem, and stop sabotaging other sovereign countries’ active efforts to solve their debt issues.”
(Reporting by Chris Mfula,additional reporting by Anait Miridzhanian and Marc Jones;Writing by Estelle Shirbon,Editing by Alexander Winning, Susan Fenton and Emelia Sithole-Matarise)
