Zambia’s eurobonds tumbled after the International Monetary Fund said the nation is seeking as much as $8.4 billion in debt relief as it prepares to start discussing restructuring foreign liabilities.
(Bloomberg) — Zambia’s eurobonds tumbled after the International Monetary Fund said the nation is seeking as much as $8.4 billion in debt relief as it prepares to start discussing restructuring foreign liabilities.
The southern African country, which in 2020 became the continent’s first pandemic-era sovereign defaulter, finalized a deal with the Washington-based lender last week for a $1.3 billion bailout and economic program. The government is seeking to restructure its external debt that reached $17.3 billion last year, and an IMF report published Tuesday set the tone for complex restructuring negotiations starting this month with creditors ranging from Chinese state-owned banks to eurobond holders.
Zambia’s $1 billion of eurobonds due 2024 plunged 6.3% to 55.75 cents on the dollar by 9:34 a.m. in London on Wednesday. Securities due 2027 slumped 6.5% to 55.47 cents.
The IMF had been waiting for Zambia’s official bilateral creditors committee, co-chaired by China and France, to provide it with assurances that they were willing to rework their loans to the nation. Those came on July 30, and the government plans to “vigorously” begin restructuring negotiations with official and private creditors in September, according to Mukuli Chikuba, the Finance Ministry’s permanent secretary.
“My initial read is there’s no big surprises there in terms of what their expectations are,” said Kevin Daly, a portfolio manager at abrdn plc in London, who sits on Zambia’s eurobond-holders committee. “Now comes the more difficult part: discussing the modalities of the restructuring with the various creditors groups. It’s never that straightforward.”
Restructuring Strategies
While official creditors were privy to at least some of the information contained in the IMF report, most private creditors — including the holders of its $3 billion in outstanding eurobonds — had been eager to read the report to prepare their restructuring strategies. There were fears the economic forecasts for Zambia could be seen to be too conservative, making negotiations more difficult.
The $8.4 billion worth of relief would equal an estimated 90% of payments that Zambia should have made to external private and official creditors between 2022 and 2025, according to UK-based Debt Justice, previously known as the Jubilee Debt Campaign, which lobbies for poor countries’ loans to be written off.
“It is welcome that the IMF is pushing for large-scale cancellation of Zambia’s external debt payments in the next four years,” said Tim Jones, policy head at the organization. “But these must be canceled permanently, not rolled over to the 2030s to fuel another debt crisis next decade.”
The IMF report also says Zambia would require additional debt relief from 2026 to 2031, which it didn’t quantify.
More Key Points:
- The present value of Zambia’s public and publicly guaranteed debt is 85.5% of gross domestic product in 2021, falling to 70.9% this year, and 68.1% by 2025. This moderate decline is a “positive surprise,” Daly said.
- Zambia’s primary fiscal balance is seen improving to a 3.2% surplus by 2025 from a deficit of 6% of GDP in 2021.
- The government will only accept disbursements on contracted but unspent project loans of $1.4 billion, of which $834 million is from the World Bank and African Development Bank. It had contracted $3.9 billion from lenders that is yet to be disbursed.
- Because Zambia defaulted before restructuring, the probability of regaining meaningful access to international markets in the medium term appears low.
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