Zambia set to exit debt default after bondholders approve $3 billion restructuring plan

Zambia’s Ministry of Finance announced a major breakthrough in its efforts to restructure its $3 billion in outstanding international bonds, with over 90% of bondholders accepting its proposal. This development marks a significant step towards the country emerging from a lengthy default that has plagued its economy for over three years.

The restructuring process, conducted under the G20 Common Framework, aims to bring together creditors from various countries, including China and members of the Paris Club, to facilitate debt overhauls for low-income nations like Zambia. Despite facing delays and challenges, Zambia’s Finance Minister Situmbeko Musokotwane expressed optimism about the agreement, stating that it will provide the fiscal breathing space needed for sustainable economic growth.

The voting on the proposal is set to conclude on May 30, with the government expecting approval based on the instructions received from bondholders by May 24. Ajatta Mediratta, president at Greylock Capital Management, highlighted the arduous nature of the restructuring process but acknowledged the potential for improvement as lenders gain more experience with the Common Framework.

As part of the restructuring plan, bondholders will exchange existing instruments maturing in 2022, 2024, and 2027 for two amortising bonds. The IMF, which provided Zambia with a $1.3 billion loan in 2022 contingent on debt restructuring, welcomed the progress as a step towards restoring debt sustainability.

Despite the positive developments, Zambia’s international bonds remained stable in trading, with the 2024 bond at 63.4 cents in the dollar and the 2027 maturity at 75.98 cents. A spokesperson for the private bondholders declined to comment on the matter.

Overall, the acceptance of Zambia’s restructuring proposal signals a potential turning point for the country’s economy, providing hope for renewed growth and stability. With the support of creditors and international institutions like the IMF, Zambia is poised to overcome its debt challenges and embark on a path towards sustainable development.