Indebted Zambia and the International Monetary Fund (IMF) locked in difficult talks for a possible bailout, laying the groundwork for debt relief in a new framework to help poor countries cope with unsustainable arrears .
The copper-rich southern African country became the continent’s first sovereign default during the coronavirus era after it skipped a $ 42.5 million (€ 34.8 million) interest payment on one euro – bond last year.
Zambia – which saw its external debt soar to nearly $ 12 billion in 2020 – asked the IMF for funding in December to finance its reform efforts.
He then missed a second Eurobond coupon payment of $ 56.1 million last month, and days later requested a loan restructuring as part of a debt suspension initiative. of the G20.
Three-week virtual talks with the IMF began on February 11.
“There is an incentive to put Zambia under some sort of program (IMF) that will support a debt restructuring process within the common framework of the G20,” said Mark Bohlund, analyst at REDD Intelligence.
But President Edgar Lungu is currently focusing more on curbing coronavirus setbacks and gaining public support ahead of the August general election, analysts say.
“They have very different interests,” said Aleix Montana of research firm Verisk Maplecroft.
“The IMF wants Zambia to be transparent about its debt terms and implement austerity measures.”
Zambia wants to “continue to invest in popular infrastructure projects to … secure the re-election of the president,” he added.
– Always spending –
Central Bank Governor Christopher Mvunga assured talks with the IMF “cordially continued”, adding that the government had already cut borrowing, canceled construction projects and cut spending to meet IMF demands.
But a recent state decision to buy a controlling stake in the Mopani copper mines from Swiss giant Glencore is likely to complicate discussions, analysts warn.
The government-controlled ZCCM Investments Holding buys Mopani for a nominal amount of $ 1, but assuming the company’s $ 1.5 billion debt.
Zambian financial analyst Trevor Hambayi doubted the government would get a bailout before August.
“The IMF has been very adamant about what we need to do,” he said, noting that Zambia has been pursuing an IMF program since 2016.
Bohlund, however, suggested that Zambia’s position as a “test case” for bilateral debt relief under the G20 could prompt the IMF to “announce” an extended credit facility by August and ” Work out the details “after government transition.
– “ Unreported debts ” –
Zambia was the third African country to request debt restructuring under the G20 initiative after Ethiopia and Chad.
Last year, the world’s 20 richest countries – including China, Africa’s largest creditor – agreed to a moratorium allowing poorer countries to temporarily stop serving eligible debt to concentrate their resources. on the fight against the coronavirus.
The stakes are high. Several African countries have seen dangerous pre-pandemic debt levels worsen with the coronavirus, fueling international concern.
But civil society fears that the pressure will precipitate the IMF towards financial support without demanding that the private creditors of China and Zambia agree to significant debt relief, let alone cancellation.
“They want it to work,” said Iolanda Fresnillo, advocacy officer for the European Network on Debt and Development (Eurodad).
“Even if the private sector offers very moderate debt re-profiling without a haircut, without any debt cancellation, the IMF will likely go ahead.”
“We know what Zambia needs is restructuring and debt cancellation,” she added.
An IMF spokesperson told AFP that talks with Zambia were “ongoing”.
Lack of transparency remains a sticking point that could both block talks with the IMF and hamper negotiations with creditors.
Officially, Zambia in 2019 owed around $ 3 billion to bondholders, $ 3.5 billion in bilateral debt and $ 2.8 million to multilateral lenders, according to World Bank data, as well as some 2 billion dollars. , $ 4 billion to commercial creditors.
About $ 3 billion of this debt is owed to China and Chinese entities.
But there are concerns about “additional unreported debt,” Bohlund said, particularly to commercial lenders in China.
The opacity of Chinese loans, as well as the influence of China on the G20 framework, raised fears of unequal treatment.
“Bondholders are concerned that if the IMF gives some debt relief, it will be used to pay off Chinese creditors,” Montana said.
China, meanwhile, will likely only agree to debt cancellation if the offer is matched by commercial creditors – a scenario Bohlund considers unlikely.
“These companies often manage other people’s money,” he explained. “They can’t get their debt off because … it’s not their money.”
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