Friday marks the last day of the grace period granted by IMF for Zambia’s overwhelming foreign debt of $12 billion. The pandemic hit when the country tried to recover from debt and interest that comes with it, and now the future looks glum.
The pandemic brought an additional burden on the health providers and an overall shift of the country’s focus mainly on the healthcare sector. The economic activity, therefore, lessened massively, and paying the debt became more difficult.
The debt includes $3 billion in bonds, which were issued in Europe.
The Zambian government has requested the bondholders to grant a deferral until April of the next year for these payments’ interest. The country has been fighting a pandemic while the economy shatters in worse possible ways as the creditors rejected this request on Friday.
“They will not support the standstill or consent solicitation and, given our precarious position that requires us to treat all creditors equally, we have no other alternative but to accumulate arrears,” said Bwalya Ng’andu, the Finance Minister of Zambia.
The creditors who hold more than 40% of Zambia’s bonds called The Zambia External Bondholder Committee said that they couldn’t possibly agree to the country’s request, and they have already decided to reject the motion.
If Zambia fails to pay the coupon, the country will be considered debt, including the Eurobonds of $3 billion.
As the second wave of the disease hit many nations across the world, the African nations closely observe Zambia’s situation as an example of how a broader debt crisis will be dealt with among borrowers and creditors.
“The position of government is that we have to treat all the creditors equally,” Ng’andu said. “We are continuing with engagement with the bondholders through our advisers, and we hope that process of engagement will lead to some solution along the way.”
Experts like Sarah-Jayne Clifton of Jubilee Debt Campaign based in the UK say that lending money to developing countries like Zambia with high-interest rates is immoral. There is a high chance that the debt might become too great for the country to bear.
“That risk has now materialized, and bondholders must now accept a significant debt write-down. It is simply immoral for bondholders to demand full repayment and to make huge profits on Zambia’s debt while the country struggles with Covid-19, a major economic crisis and spiralling poverty levels,” she said.
Adding injury to the blow, Zambia has also borrowed money from China as much as $3 billion. Though the China Development Bank has agreed to defer the debt payment for six months, the exact terms of Chinese contracts are too unclear.
The debt may also be called a reckless splurge as the country is already facing an impossible situation regarding paying its debt to the countries that the country has already borrowed from.
Zambia’s total external debt stands at 18% of the country’s GDP, which amounts to $4.8 billion as 2014 ended. The debt doubled in the next four years, and the amount needed to be paid $11.2 billion of nearly half of the country’s total GDP (48%).
International Monetary Fund (IMF) predicts that Zambia’s debt will increase by a factor of over 70% as the year 2020 ends, which makes the creditors wary, and they refuse to reconsider their terms for payment.
Zambia’s Kwacha has gone down to over a third since the year started, which added extra pressure to an already crumbling economy.
However, the Vice President of the country, Inonge Wina, is hopeful even in such dire conditions. He said that the country will overcome this hurdle and that Zambia will get by somehow.
When asked by an opposition member if the country would default and f they will be able to make their payments by Friday, Wina said, “Zambia will not default.” He further elaborated, “A way forward will be found in meeting Zambia’s obligations to the bondholders and other lenders that supported Zambia in her hour of need.”
Now all anyone can do is wait with bated breath as the days bring Zambia closer to Friday and the chance of the country to go towards a possible bankruptcy
I’m Ava Paul, an experienced news website author with a special focus on the entertainment section. Over the past five years, I have worked in various positions of media and communication at World Stock Market. My experience has given me extensive knowledge in writing, editing, researching and reporting on stories related to the entertainment industry.
