Debt Restructuring – why this is a big deal

By Chimwemwe Mwanza

The dust has settled – and both the bullish and sceptics have opined their positions, the outcome of which reflects divergent views from a highly partisanship and deeply polarised society. Having achieved this milestone, one would imagine that discourse on the country’s success in restructuring its debt with its lenders would naturally transcend petty politics?
Well, no surprises here. This is Zambia where everything is viewed within the lens of one’s political affiliation. Against this background, it’s important to dissect the commentariat’s views on this deal including its implications on the country’s economic trajectory from a middle lane.

Agreed, ours is a country faced with a diverse set of existential problems as such our reality is that that this achievement won’t be a panacea to the prevailing socio-economic woes afflicting 54% of our population – at least not in the short-to medium term. Factors such as the high cost of living, hyperinflation, including the adverse impact of the El Nino induced drought will likely continue to characterise the socio-economic outlook for the foreseeable future – in the process negating any potential relief that the restructured debt deal could bring to the fore.

In addition, conflicts such as the Russia and Ukraine war, will continue to disrupt the global food supply chain thereby rendering African economies including ours vulnerable to food security. In short, our fortunes are intricately tied to factors beyond our control. Hence this caution, we ought to be careful of the news we consume – be it in the main-stream or social media platforms. It’s troubling that we have become so fixated on chasing twisted information that we sometimes forget to see lies for what they are – this is dangerous.

What is striking though is that amid all this disinformation stratagem, former President Edgar Lungu has been magnanimous enough to congratulate the incumbent on this deal. It goes without saying, this achievement belongs to all Zambians and should not be appropriated by any political formation. At best, Lungu’s rare gesture of benevolence to his successor genuinely underscores the significance of this milestone to the country. Besides, nobody appreciates better the implication of this deal on the country’s growth trajectory than the former head of state.

Impact of successful debt restructuring explained

Try as Lungu’s dispensation did, they failed to convince our lenders to restructure this debt. In fact, it was under their watch that Zambia became the first country in the world to default on its debt-servicing obligations during the Covid-era, a factor that effectively consigned our economy to junk status. What did this mean then? It meant that Zambia’s appeal as an investment destination including its creditworthiness had all but diminished in the eyes of the global investment community, almost making it impossible or at least expensive to borrow money for its developmental projects.

So, what does this debt restructuring deal mean? In a nutshell, this agreement, provides debt relief by bondholders, who will essentially forego around US$840 million in claims of past due interest (PDI) accumulated when the country stopped servicing its debt in 2020. This will also result in the offer of nearly US$ 2.5 billion in cash flow relief through reduced debt servicing payments during the International Monetary Fund (IMF) programme period. Off course, this could be a game changer depending on how this government structures its investment and spending priorities.

This economy desperately needs access to cheaper capital so as to achieve desired growth outcomes, which is why this demonstration of goodwill by lenders should not be taken for granted. And the fact that the local currency has marginally firmed against major convertibles in the aftermath of this deal bodes well for the Kwacha – which has literally spent the last 3 years struggling to defy gravity.

It’s fact, our manufacturing base has detoriated over the last 3 decades making it even more imperative for government to focus its priorities on re-industrialising our economy. Zambia is endowed with untapped natural resources which if properly harnessed can help steer this economy out of the doldrums. Even more encouraging, infrastructure that could easily underpin a sustainable growth momentum is firmly in place.

All the state ought to do for now is to cautiously navigate how it adopts austerity and other onerous conditionalities which the IMF tends to impose on developing countries that have subscribed to its programs – this is critical. We should not squander this moment. And truth be told, our lenders have thrown us a lifeline – it’s now in government’s hands to pick up the baton and start sprinting towards the finishing line. We watch with baited breath.

Mwanza enjoys reading history and philosophy. For feedback, contact kwachaoneATgmailDOTcom