Kelvin Chisanga outlines:”The implications of Zambia’s debt restructuring process!”
By Kelvin Chisanga Sunday, 18th September, 2022
In as much as debt has been the main precursor relating it to the International Monetary Fund (IMF) bailout package, it is also a tough puzzle to work around with, especially with the questions surrounding debt restructuring plans mainly due to the complicity with a portfolio of national debts, which comprises of debts from capital market, bilateral parties and multilateral players altogether combined.
Zambia went on, to issue three key debt instruments (Eurobonds) in 2012, 2014 and 2015 which are estimated to have a stock value of slightly above $3 billion worth of international market debt without the other external funding counting them too, though my peculiar interest is narrowed down on the Eurobonds.
The current challenging part today is the repayment of a first and 2012 Eurobond in this month of September, thus amounting to $750 million, of which from the look of things is unlikely going to be paid up due to many factors sitting on the table especially that Zambia doesn’t seem to have prepared enough life-saving models for this particular payment package.
So, the consolation is that we need to restructure all debt portfolios to a comparable terms so that repayments can be guaranteed to all parties regardless of debt nature, otherwise at this point in time no one creditor is superior to the other.
Though, the challenge with Eurobond is that they are so many stakeholders that are involved into it and that’s make it a little bit difficult to re-arrange or restructure but hopefully we will pass this stage at a higher cost I guess.
The many other biggest challenge as well is also coming from a number of defaults that Zambia has done so far, and it is however gratifying to state that Zambia should also make a formal request of extension right before anything goes deeper with the IMF to negotiate on a 20 year repayment scheme on its recent announced package rather than making it in 15 years with 10 years repayments and 5 years grace period.
This extension can also help put key economic fundamentals in place, and will help out to push growth in the economy. And we should make sure at all possible costs that we strongly push to work around this recently approved parliamentary financing benchmarks without going beyond 65% of total GDP in both future loans and guarantees.
It will be ideal for Zambia to push creditor’s committee meetings faster so that debt restructuring framework starts anchoring good expectations in the economy, otherwise this will spoil the good marks recorded so far, especially if we delay any further at this point, though we were expecting the IMF bailout package to have come out way after this process of debt restructuring.
The biggest implication on deferred or extension of maturity payments will come with it an increased interest cap, as an additional cost on the margin, this too should be explored fully to the latter, and otherwise Zambia is currently sitting on this huge financial puzzle.
The other challenging factor which is also partly on the Eurobond side is that we have some local financial players who might be disturbed as well in the deferments, if these payments are delayed and that in itself causes yet another hot issue with the local financial market patterns.