The Zambian Government has announced that it has reached an agreement on a comprehensive debt treatment with its Official Creditors under the G20 Common Framework.
According to Secretary to the Treasury Felix Nkulukusa, this landmark achievement is a significant step towards restoring Zambia’s long-term debt sustainability.
Mr Nkulukusa says the deal complements the strong commitments from Zambia’s Multilateral Development Partners to support the country’s economic recovery through substantial concessional financing.
“The Zambian Government commends the support and cooperation of its Official Creditors in reaching this agreement, which demonstrates a mutual commitment to restoring debt sustainability in line with the International Monetary Fund (IMF) program targets,” Mr Nkulukusa said in a statement.
He said the Government is confident that this debt treatment, which entails significant maturity extensions and reduction in interest rates, will allow for the allocation of additional financial resources towards critical public investments, particularly in areas such as healthcare, education, and infrastructure development.
He said under the agreed terms, the Official Creditors will provide a debt treatment contingent on Zambia’s debt-carrying capacity at the end of the Fund-supported program.
He said this will be assessed under the IMF and World Bank Debt Sustainability Framework for Low Income Countries and will take account of the country’s economic performance and progress in strengthening economic policymaking.
“The agreed debt treatment will be adjusted if conditions improve enough to justify an upgrade from “weak” to “medium” debt carrying capacity, in which case principal reimbursements would be accelerated and interest payments increased. This debt treatment ensures that Zambia achieves debt sustainability in all cases.”
He said official creditors have also agreed with the Government that local currency denominated debt will be excluded from any treatment.
“The terms of the agreed treatment will be further described and formalized in a Memorandum of Understanding between Zambia and Official Creditors, which will then be implemented through bilateral agreements with each member of the Official Creditor Committee. The Zambian Government looks forward to engaging with Official Creditors to ensure prompt implementation of the agreed terms,” Mr. Nkulukusa said.
He said the agreement is expected to pave the way for the approval by the IMF Executive Board of the first review of the Fund-supported program in the coming weeks, allowing for the next tranche of IMF financing of about US$188 million to be disbursed.
He said this disbursement will further bolster Zambia’s economic recovery and reform agenda.
“It should also support ongoing engagement with private creditors, including bondholders, with whom Zambia remains committed to finding an agreement on comparable terms as early as possible, to decisively resolve the issue of Zambia’s debt overhang.”
“Today is a big day for Zambia as we reach an agreement with our official creditors on a debt treatment plan. We are grateful for the support from our official creditors in resolving Zambia’s debt overhang that has been choking our economy. This agreement marks a crucial milestone in Zambia’s ongoing efforts to strengthen its economy and improve the quality of life for its citizens,” Mr Nkulukusa said.
“We will now work to achieve a swift resolution with our private creditors and deliver opportunity and economic stability to the Zambian people.”
And President Hakainde Hichilema described the development as a great milestone for Zambia.
“We are delighted to announce that today in Paris, we successfully reached an agreement on the treatment of bad debt with our official creditors. This represents a significant milestone in our efforts towards economic recovery, and the importance and urgency of this endeavor cannot be overstated,” President Hichilema said.