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Zambia becomes first African country to ask bondholders for relief since start of COVID-19 pandemic

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Published on: June 16, 2023

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Zambia has became the first African country to ask bondholders for relief since the onset of the coronavirus pandemic, seeking to defer interest payments on its Eurobonds as it battles the economic hit from the pandemic, Bloomberg reported.

According to the report, Zambia asked for meetings on October 20 with the holders of three Eurobonds totaling $3 billion to seek consent for a standstill until April next year. The country hopes that this will give it some ‘breathing space’ as it plans for a debt restructuring.

Zambia’s $1 billion of notes due 2024 fell more than 5% in London to 52.12 cents on the dollar, after the government said a coupon payment due Oct. 14 would be included in the proposed suspension.

According to a government statement emailed to Bloomberg, Zambia has been faced with unprecedented liquidity constraints that have been exacerbated by the COVID-19 pandemic, resulting in a substantial decline in revenues.

“A combination of declining revenues and increased unbudgeted costs caused by the COVID-19 pandemic have resulted in a material impact on the government’s available resources to make timely payments on its indebtedness, leading to increasing debt servicing difficulties,” the email statement to Bloomberg read.

The pandemic has worsened Zambia’s finances, which were already straining after years of overspending funded in part by external borrowing. The currency of Africa’s second-biggest copper producer is the world’s worst performer this year, making payments on its $11.7 billion in external debt even more costly after foreign reserves slid to record lows. The government said it hopes its restructuring plans will win support from the International Monetary Fund.

The government had last month secured a debt-suspension deal up to the end of the year from some official creditors. As part of this accord, Zambia was also obliged to seek comparable terms with commercial lenders, according to Mukuli Chikuba, permanent secretary at the finance ministry. Asking for a suspension of interest payments doesn’t amount to default, he said, adding that the government met a coupon payment earlier this month.

Zambian Finance Minister Bwalya Ng’andu is due to present the 2021 budget on Friday, which could offer insights into the government’s restructuring strategy and chances of winning an IMF bailout.

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