Zambia’s official creditors are expected to offer it financial assurances by the end of July, paving the way for the first debt restructuring under a G20 framework set up during the height of the COVID-19 pandemic, two sources briefed on the matter said.
Zambia would be the first of three countries that have requested debt relief under the Common Framework agreed by the Group of 20 major economies and the Paris Club of official creditors to move forward in what has been a very slow process.
The creditor committees of Zambia, Chad and Ethiopia are all due to meet this month amid growing pressure to accelerate the debt restructuring process.
No firm date has been set for a meeting of Zambia’s creditor committee, but sources briefed on the matter said they expected the African country to secure financial assurances by the end of the month, and said private sector creditors were cooperating.
Russia’s war in Ukraine has sent food and energy prices surging higher, exacerbating debt problems already plaguing 60% of low-income countries and now threatening a growing number of middle-income countries.
The Common Framework was set up in October 2020 to head off another major debt crisis, but progress has been slowed by the reluctance of China – now the world’s biggest sovereign creditor – and private sector creditors to participate, which has dissuaded other countries from seeking debt relief.
Experts say movement on Zambia could help spur more interest among heavily indebted countries, especially given the growing risk of a global recession, higher interest rates and continued outflows of capital from emerging market economies.
Improvements to the Common Framework will be a key topic at next week’s meeting of G20 finance officials in Indonesia, but Zambia’s case is unlikely to be resolved before that meeting, the sources said.
IMF and World Bank officials have been blunt about the failings of the Common Framework.
They are pushing for finance officials of the G20 major economies to apply more pressure on China and private sector creditors to participate.
Zambian Finance Minister Situmbeko Musokotwane said last week the country’s economy would be highly compromised without external support.
A Paris Club source said earlier this week that the group of wealthy creditor nations was working on providing financing assurances to the IMF that could unlock funds for Zambia.
“We hope that that can be done before the end of July,” the source added.