CSO Debt Alliance Expresses Concerns Over Delay in Zambia’s Debt Restructuring Process and its Implications on IMF Extended Credit Facility Program

The continued protraction of Zambia’s debt treatment process could have significant implications on the country’s International Monetary Fund (IMF) extended credit facility program, warned the CSO Debt Alliance in a press statement released on March 9th, 2023.

Zambia has been optimistic about getting debt restructuring under the G20 common framework in the last few months, but the process has proven to be complex and has since been delayed for almost 18 months, despite the country getting on an IMF program in September 2022. The sovereign debt round table discussions, co-chaired by the IMF and the World Bank, and joined by creditors from the Paris Club and the private sector, were expected to resolve the issue.

“The failure to reach an agreement on these issues further prolongs Zambia’s already protracted debt restructuring process. This may have several implications on the success of the IMF extended credit facility program for Zambia and its economic recovery paths,” said Mr. Peter Mumba, CSO Debt Alliance Coordinator.

Zambia’s entire IMF extended credit facility program was designed on the premise that the country would have its debt restructured as a requisite to achieving the objectives of the government’s economic reform agenda whilst helping to restore macroeconomic stability. The current suspension on debt servicing is not a lasting solution. Therefore, if Zambia’s debt is not restructured, it is likely that the country will continue to struggle with servicing its debt, which would pose several challenges when it comes to budget implementation and ultimately the economic reforms needed to stabilize the economy.

“Further delays in this process will compromise the efficacy of the country’s IMF program and deter its path to economic recovery. As such, there is a need for the government to devise a plan of action that will aid the country in the event debt treatment negotiations under the common framework do not materialize during the expected period,” added Mr. Mumba.

The prolonged negotiations can adversely affect key macroeconomic variables, depreciating the kwacha against major global currencies like the United States Dollar (US$), which has fallen from about K15.8/US$ in September 2022 to trade at K20.1/US$ as of March 2023. This can have a negative impact on investment as investors may become hesitant to invest in the country, leading to reduced economic activity and slower growth. For an import-dominant country like Zambia, this can also exert upward pressure on both the cost of living and that of doing business.

“There is a need to swiftly resolve the various challenges that are causing rigidities in the G20 common framework to make debt restructuring negotiations easier for requesting countries such as Zambia,” added Mr. Mumba.

The CSO Debt Alliance urged the government to remain committed to implementing the various economic and structural reforms contained in the IMF program, as they are key in driving the economy back to recovery. The government should also continue building strong bilateral relations while upholding transparency with all its creditors to avoid falling into the trap of uneven treatment of creditors, which can further complicate debt restructuring negotiations.

The statement concluded that the CSO Debt Alliance is cognizant of the various complexities accompanying the debt treatment process both under the G20 common framework and outside the framework. However, further delays in this process will compromise the efficacy of the country’s IMF program and deter its path to economic recovery.