Zambia insists it will pay its dues

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Lusaka - Zambia remains committed to honouring its obligations to lenders and bondholders, but needs breathing room to rebalance its fiscal position in the midst of an economic crisis largely triggered by the COVID-19 pandemic, the country’s central bank chief has said.

Zambia has a debt portfolio amounting to around US$18 billion due to domestic and external creditors. This includes US$3 billion due to Euro bondholders.

Bank of Zambia Governor Dr Patrick Mvunga this week told local media that bondholders could expect Lusaka to resume servicing its obligations from April 2021, emphasising that the government would not default.

Negotiations are underway to service dues to China in yuan.

The External Bondholders Committee on November 14 objected to Zambia’s request for a waiver on the repayment of the US$3 billion, demanded to know exactly how much the country owed China, and refused to sign confidentiality agreements related to the negotiations.

Zambia has already failed to make a US$42 million interest payment on a US$1 billion bond that is fully due in 2024. That allows bondholders to demand an immediate repayment of the entire principal sum.

Finance Minister Dr Bwalya Ng’andu issued a statement this week saying: “However, since the decision is now known that they will not support the standstills or consent solicitation, and given the precarious fiscal position that requires us to treat all creditors pari-passu (on an equal footing), Zambia would, unfortunately, have no other alternative but to accumulate arrears.”

Bondholders are adamant that Zambia is not treating creditors equally, with their financial advisors, Newstate Partners LLP, saying the government’s handling of the debt issue was opaque.

They added that last week’s failure to make the US$42 million payment had further eroded trust and made for an adversarial backdrop to negotiations.

In the midst of that standoff, the finance minister, Dr Ng’andu as announced a US$100 million loan repayment deferment arrangement with China Eximbank for money due at the end of 2021. The agreement was within the framework of the G20’s Debt Service Suspension Initiative (DSSI) and includes both interest and principal payments. 

In October, the China Development Bank agreed to a separate six-month deferral of a loan whose value was not revealed.

Mr Mbewe Kalikeka, head researcher at the Zambia Institute for Policy Analysis and Research, said the government had reaped the benefits of respectful dialogue with China and a similar approach could bear fruit with other creditors.

“A default is the last thing that should happen because it will reverse all economic gains and will affect the trade balance with other countries because Zambia will be very expensive to do business with,” he said.

“The best we can do is to renegotiate with the bondholders and then we start a solid economic recovery plan because what this means now is that we cannot fulfil the budget because we will not be allowed to borrow.”

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