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.

“By resolving our debt burden, we will be better positioned to attract the essential investments needed to generate employment opportunities for our citizens.”

“We express our sincere gratitude to our official creditors for their unwavering support and ongoing engagement throughout the entire process. We also thank you the people of Zambia for your unflinching support and solidarity,” President Hichilema said.

Zambia is poised to announce a significant debt restructuring deal today, as the Paris Summit on easing debt burdens for impoverished nations convenes. Bloomberg reports that Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), has praised Zambia for its efforts and expects the debt agreement to be officially disclosed during the summit.

During a round table discussion held in Paris, Ms. Georgieva commended Zambia as a prime example of effective and efficient debt restructuring. She extended her congratulations to President Hakainde Hichilema for spearheading the initiative, highlighting the country’s agile approach to managing its debt obligations.

Additionally, Ms. Georgieva shared the news that developed nations have fulfilled their commitment to allocate $100 billion from IMF resources for lending to the world’s poorest economies. This commitment involves countries contributing reserve assets, known as Special Drawing Rights, to the IMF’s Resilience and Sustainability Trust and the Poverty Reduction and Growth Trust.

Zambia’s breakthrough in debt restructuring sets a crucial precedent for countries facing challenges in servicing their liabilities. The nation has reached an agreement in principle to restructure $6.3 billion in debt with bilateral lenders, according to a French official participating in the Paris Summit.

The anticipated announcement of Zambia’s debt agreement signals a significant milestone in the country’s ongoing efforts to address its financial burdens. The government’s proactive approach to debt management has garnered recognition and praise from the IMF, further solidifying Zambia’s commitment to securing a sustainable economic future.

As the Paris Summit progresses, delegates and leaders from various nations continue to engage in discussions and collaborative efforts to alleviate the debt burdens faced by impoverished countries. The collective commitment of nations and international organizations, exemplified by the debt agreement reached by Zambia, offers hope for other nations grappling with similar challenges.

President Hakainde Hichilema has arrived safely in Paris for the Summit for a New Global Financing Pact, where discussions on the debt restructuring deal are set to take place. Alongside other world leaders, President Hichilema will engage in deliberations on various issues, with a primary focus on “Building a new consensus for a more inclusive international financial system.”

President Hichilema expressed confidence that his government will secure a debt restructuring plan during talks with official creditors in Paris this week. Zambia became the first African nation to default on its foreign debt in 2020, with the outstanding amount officially standing at $18.6 billion since the onset of the Covid-19 pandemic.

Seeking assistance to restructure its debt, Zambia turned to the G20 mechanism, co-chaired by Paris and Beijing. However, the implementation of the plan has faced delays. President Hichilema announced during a press conference in the Rwandan capital, Kigali, that an agreement was anticipated.

“The framework that we should agree on in the next few days, and the presence of other leaders, show our urgency to conclude,” President Hichilema stated. He expressed the desire to conclude Zambia’s debt restructuring and emphasized that the process has been ongoing for too long. Describing the debt as a burden akin to a “python crippling us in the neck, the ribs, and the legs,” Hichilema emphasized the pressing need for resolution.

The international community has closely monitored Zambia’s debt restructuring journey. The United States has been actively engaged in the process, urging China, Zambia’s largest creditor, to facilitate a swift resolution. The progress made so far has been encouraging, with the US Treasury expressing hope for an agreement on official bilateral creditors in the near future.

Negotiations on debt restructuring, a crucial step toward unlocking the IMF’s aid plan for Zambia, have been underway for two years. The Paris Club, an informal group of official creditors responsible for finding solutions for countries struggling with debt repayment, began its meetings on Wednesday, preceding the summit in Paris, which aims to devise strategies for reforming global financing in the face of climate change.

President Hichilema expressed hope that his presence in France, alongside French President Emmanuel Macron and Chinese Premier Li Qiang, would expedite the process. He emphasized the need for unity among the three leaders, suggesting that an imminent announcement of a debt restructuring deal is on the horizon.

Zambia’s successful debt restructuring could serve as a model for other countries facing similar challenges. President Hichilema believes that if an agreement is reached, the G20’s Common Framework for debt restructuring, involving traditional lenders from the Paris Club as well as new lenders like China and bondholders, can be expanded to assist other nations in addressing their debt burdens.