LUSAKA – Zambia and its government creditors, including China, have reached a deal to restructure $6.3 billion in loans, according to an announcement by the French government.
The agreement, according to AP news, covers loans from several countries, including France, the UK, South Africa, Israel, India, and China, which is Zambia’s largest creditor with $4.1 billion of the total debt. The deal, which was approved by the International Monetary Fund (IMF), may serve as a model for China’s approach to restructuring deals with other nations facing debt distress.
The restructuring agreement allows Zambia to receive additional financing from the IMF. The deal was announced during a global finance summit in Paris, where world leaders, finance officials, and activists gathered to discuss financial system reforms to assist developing nations grappling with debt, climate change, and poverty.
Zambia, Africa’s largest copper producer, became the first sovereign nation on the continent to default during the COVID-19 pandemic when it missed a $42.5 million bond payment in November 2020. The debt has hindered the country’s economic development and prevented it from undertaking new projects. Prolonged debt crises can exacerbate poverty, unemployment, and hinder a nation’s access to credit needed for rebuilding.
U.S. Treasury Secretary Janet Yellen, present at the summit, welcomed the news of the Zambia deal. Yellen had previously visited Zambia in January to meet with President Hakainde Hichilema and draw attention to the consequences of the country’s debt crisis.
Yellen urged both official and private-sector creditors to finalize debt restructuring promptly to encourage private investment and stimulate the economy.
Specific details of the restructuring deal were not disclosed, but French officials indicated that Zambia’s debt would be reorganized over a 20-year period, with a three-year grace period.
The agreement also includes a provision aimed at ensuring that Zambia receives similar treatment from private creditors, who hold an additional $6.8 billion in loans to the country. However, it remains uncertain whether private creditors can be compelled to comply with such terms.
A memorandum of understanding is expected to formalize the deal in the coming weeks. This agreement follows a mechanism known as the Group of 20 Common Framework, which was established in late 2020 to facilitate debt negotiations between the Paris Club of government creditors and other major economies, including China.
The deal with Zambia is the second to be reached under this framework, following a similar agreement with Chad last year. Janet Yellen has also called for addressing debt overhang in other countries, such as Sri Lanka.
