As the outlines of a deal to help Zambia get out of its debt crisis have been revealed, President Hakainde Hichilema can finally exhale with relief.
In 2020, the copper-rich nation turned into the main African country to default on its obligation installments during the Coronavirus pandemic. It was burdened by loans and high interest rates, which severely limited the government’s capacity to invest in essential social programs and infrastructure development, which are both essential for economic growth.
Zambia has successfully reached new repayment terms with its state creditors for up to $6.3 billion (£5 billion) in debt, including over $4 billion owed to China, after months of negotiations.
Zambia had been dissatisfied with the slowness of the negotiations, with some blaming China for the delay, which Beijing denied.
The agreement was hailed as “historic” by Emmanuel Macron, the president of France, who was instrumental in persuading China to accept it. It’s possible that other countries with a lot of debt will follow suit.
Mr. Hichilema acknowledged on Twitter that the more than $6 billion in debt to private lenders still needs to be addressed. “But the hard work is not yet,” he said.
His promise to address Zambia’s financial woes, which he had inherited from his two predecessors, Michael Sata and Edgar Lungu, who had allowed Zambia to take on significant loans to finance infrastructure projects, helped him win the election in 2021.
Although some of that money was put into investments, it is believed that corruption cost a lot of it.
Breathing space
Zambia needed to restructure its debt in order to get the money it needed, even though the International Monetary Fund (IMF) had already agreed to a bailout. Regaining financial stability, fostering sustainable growth, and safeguarding the well-being of its citizens are all possible outcomes of this debt restructuring process.
Although the specifics of the agreement have not yet been made public, it appears that Zambia will be given a repayment period that is longer than 20 years, including a grace period of three years during which interest-only payments will be made.
Experts are hopeful that Zambia’s economic situation will improve as a result of the agreement, and they have praised the government for securing it.
The Centre for Trade Policy and Development’s economist Isaac Mwaipopo thinks it will boost investor confidence, but he advises the government to follow an economic recovery plan.
“Given that we will continue to be on an IMF program for the next three years, there is a need to come up with a clear plan for rebuilding the economy. The identification of sectors that have the potential to be strategic for growth, job creation, and poverty alleviation will be crucial.”
Zambia gains valuable breathing room to stabilize its economy, carry out necessary reforms, and pursue long-term growth by renegotiating the terms of its debt. This increased adaptability can be used to invest in social welfare, education, infrastructure, and healthcare.
The reexamined terms make the weight of overhauling the obligations more sensible, decreasing the gamble of default and saving the public authority’s reliability. Zambia also becomes increasingly appealing to foreign direct investment by demonstrating its dedication to resolving its debt issues.
Supporters of this process see it as a crucial chance for Zambia to solve its debt problems and build a solid foundation for long-term economic growth.
However, Zambia’s credit rating may be lowered as a result of the debt restructuring, potentially increasing the cost of borrowing money in the future.
Some critics also want to know what the creditors are getting out of the renegotiation, but there isn’t much information on this because there aren’t many details.
Dr. Lubinda Haabazoka, who heads the business school at the University of Zambia, said that the country should develop more domestic investment solutions rather than relying on contributions from outside sources.
“It’s going to take a long time.” We should start looking into new ways to make money. It will be essential to establish new businesses and industries. He stated, “It will be very difficult for us to convince people to lend us money because we have restructured our debt.”
Zambia’s private lenders are now the focus of attention, as the IMF is scheduled to release $188 million from its bailout package to support government spending. Although it is anticipated that they will do so, it is not guaranteed.
Even though there are reasons to be cautiously optimistic, it’s important to remember that the road to financial stability and recovery is not over yet.
