Lusaka’s Plans to Get Out of the Bonds of Debt

Zambia has secured a $1.3bn IMF bailout package, enabling the African nation to advance talks with creditors on exiting a default that will test how Beijing handles the souring of its loans to developing nations. The three-year bailout “will help re-establish sustainability through fiscal adjustment and debt restructuring” through a “homegrown economic reform plan” formulated by President Hakainde Hichilema’s government, the Washington-based multilateral lender said. The deal is a landmark for how the IMF will respond to a wave of debt distress in countries that have borrowed heavily from China. Situmbeko Musokotwane, Zambia’s finance minister, described the IMF approval as a “moment of joy” after a long wait to obtain support. A bailout for Zambia was put off for years by frosty relations with the fund under Lungu’s presidency, until Hichilema’s election. “This is a user-friendly arrangement,” Musokotwane said. Zambia will now have to negotiate the exact terms of relief with bilateral lenders and secure a similar deal with private creditors, such as holders of $3bn in US dollar-denominated eurobonds. Both tasks will be difficult as the Chinese debt is split between several creditors and Beijing has historically been reluctant to take outright losses. Some bondholders have complained that they have been left in the dark over calculations about how much relief is needed. The IMF has argued that the Zambia programme will protect social spending, which is projected to rise from 0.7 per cent of GDP in 2020 to 1.6 per cent in 2025. But Hichilema’s government will be expected to eliminate a fuel subsidy and cut costs in farm subsidies and avoid a repeat of bad investments fuelled by debt.

SOURCE: FINANCIAL TIMES

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