Zambia agreed a memorandum of understanding to restructure its loans with official creditors, co-led by China and France, finalizing a $6.3 billion deal reached almost four months ago.
The long-awaited accord, which the International Monetary Fund announced prematurely on Oct. 12, paves the way for the disbursement of another portion of a $1.3 billion loan to the southern African nation. Zambia, which became the continent’s first pandemic-era sovereign defaulter in November 2020, must now sign bilateral agreements with each creditor.
“Our government committed to resolve the mounting debt suffocating our economy and we are proud of the immense progress we have made,” Finance Minister Situmbeko Musokotwane said in a statement on Saturday. “Once completed, debt restructuring will free up resources vital for this government to invest in our development agenda.”
Zambian bonds gained last week after the IMF’s initial statement about the deal on Thursday, and held those gains to end the week at a yield of 26.08% — down more than 100 basis points on the week.
Africa’s second-largest copper producer has yet to conclude restructuring talks with commercial creditors that include holders of $3 billion in eurobonds. They have been awaiting the finalization of the memorandum of understanding before proceeding with their own reorganization, which must be on at-least-as-favorable terms.
“The next step is to secure a comparable agreement with our private creditors,” Musokotwane said.
Governments of lower-income countries struggling to service their loans have been watching Zambia’s debt restructuring closely, as it’s seen to set a precedent for how deals under the Common Framework might look as China works with traditional creditors of the Paris Club to treat debts. The agreement may mean other nations that follow could reach quicker conclusions.
