IHS Markit, an international business think tank, says Zambia’s announcement requesting its private creditors to suspend Eurobond debt payments for six months is risk-negative but no surprise.
IHS Markit Senior Economic and Financial Consultant for Country Risk Brian Lawson said this in a statement published on the Company’s website.
Mr Lawson explained that in May, Finance Minister Bwalya Ng’andu announced Zambia’s intention to restructure its debt after years of “over-ambition” in borrowing to address its infrastructure weaknesses, with a restructuring advisor appointed shortly thereafter.
He pointed out that Zambia’s problems are long-standing, with the country’s borrowings having failed to yield the desired boost to economic activity and export earnings capacity, and facing allegations of misuse of proceeds
“On 22 September Zambia announced plans to miss three interest payments on its outstanding international public bond debt, seeking broadly similar relief to that already granted on its official debt: however, this had minimal market impact as debt restructuring has been publicly on its agenda since May.
“Some months after appointing restructuring advisers, Zambia has requested debt restructuring.
“On 22 September its Ministry of Finance announced a consent solicitation affecting its US$750 million 5.375% 2022, US$1 billion 8.5% 2025 and US$1.25 billion 8.97% 2027 notes, requesting the suspension of debt payments for six months from 14 October and covering payments due on 14 October 2020, 30 January and 20 March 2021,” he said.
He added that the Finance Ministry cited a “very challenging macroeconomic and fiscal situation” worsened by the COVID-19 pandemic as having a “material impact” on its debt service capacity.
He said the Ministry also noted that it previously had applied for relief under the G20 Debt Service Suspension Initiative and was now seeking similar debt service suspension from its private-sector creditors.
“It claimed to be negotiating with the IMF for support associated with reforms to stabilize its macroeconomic outlook and fiscal stability. Finally, it claimed that it was seeking a “consensual and collaborative” approach,” he said.
Zambia has already obtained Paris Club relief on its official debt, requested in early June and granted on 14 August, for the period 1 May – 31 December 2020, with the resources freed up to be used to increase COVID-19 related spending.