Zambia’s debt restructuring gains momentum

Zambia has made significant strides towards resolving its financial crisis, with over 90 per cent of its $3 billion international bondholders agreeing to a new restructuring proposal. This development marks a crucial step forward in the country’s efforts to emerge from an extended period of default, Reuters reported quoting Zambia’s Ministry of Finance as saying on Tuesday.

However, based on the instructions the government had received on May 24, “Zambia expects that the meetings will be quorate and that each of the extraordinary resolutions in respect of each series of existing notes will be approved at the relevant meeting,” the ministry said in a regulatory statement.

Zambia defaulted on its debt over three years ago and is currently undergoing debt restructuring under the Common Framework.

The Common Framework is a G20 initiative aimed at coordinating debt restructurings for low-income countries by bringing together major creditors such as China and the traditional group of developed creditor nations known as the Paris Club, according to Reuters.

Considered a test case, Zambia’s restructuring process has faced significant delays, hindering much-needed investments, stalling economic growth, and putting pressure on local financial markets. The situation was worsened by a severe drought.

Under the proposed plan, bondholders will exchange three existing instruments maturing in 2022, 2024, and 2027 for two amortising bonds, one of which will feature higher repayments in the event of an improvement in the country’s economic prospects.

In 2022, Zambia secured a $1.3 billion loan from the International Monetary Fund (IMF), contingent upon debt restructuring with other creditors. Trading of Zambia’s international bonds remained stable, with the 2024 bond at 63.4 cents in the dollar and the 2027 maturity at 75.9 cents, according to data from Tradeweb.