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Govt highlight’s possibility of defaulting on external debt service

GOVERNMENT has admitted that it is likely to default on external debt service if it fails to reach a favourable agreement with creditors.

In a follow-up statement after finance minister Bwalya Ng’andu’s September 29 virtual meeting with creditors, secretary to the treasury Fredson Yamba says the situation remains unfavourable for the country.

Dr Ng’andu, then, informed the world that Zambia’s debt stood at US $18.5 billion.

“The Government of Zambia and its advisers (Lazard Freres and White and Case) have received a number of questions from creditors asking for further clarification on the Republic’s debt strategy, notably in respect of how it intends to approach the servicing of its external debt in the current environment,” Yamba said.

He said as explained in Dr Ng’andu’s presentation to the Creditors, Zambia is confronting considerable challenges and liquidity difficulties compounded by the impact of the COVID-19 pandemic that has led the government to request the cooperation of all its creditors.
He said the government is negotiating debt service suspension agreements under the G20 Debt Service Suspension Initiative (DSSI) with all its official creditors and has requested comparable treatment from commercial creditors.

“In that connection, the government has sought the consent of the holders of Zambia’s outstanding Eurobonds to a standstill on debt service for a period of six months until April 2021 while it finalises its Debt Sustainability Analysis (DSA) and seeks to put the country’s debt on a sustainable trajectory,” he said. “In view of the urgency of the current situation, the Government has determined to ask all its external creditors to agree to debt service suspension on the same terms. The only FX denominated debt that Zambia will continue to pay on a current basis is debt from multilateral agencies and debt for a few priority projects that have an immediate economic and social impact. More information about the perimeter of such priority projects will be provided separately.”

Yamba emphasized that such suspension would apply to all scheduled payments of principal and interest, including accumulated arrears, for a six-month period while the country completes its DSA.

“Should Zambia fail to reach an agreement with its commercial creditors (including holders of its Eurobonds) on the terms of the appropriate standstills, as previously stated, the Republic with its limited fiscal space will be unable to make payments and, therefore, fail to forestall accumulating arrears,” he said. “The debt service suspension period that the Government is requesting will allow us to work, with the assistance of our financial and legal advisors, and in cooperation with the IMF, and all our creditors including the Noteholders and their Ad-hoc committee, to design a sustainable and equitable debt management strategy. Our common objective will be to normalize our relationship with our valued financial partners as soon as circumstances allow and to orderly address Zambia’s debt challenges.”

Yamba assured that Zambia remains committed to ensuring equitable treatment of all its creditors and ensuring transparency in its engagements.

“Should the Noteholders consent to the standstill, we will recognize interest accruing on deferred coupons in the restructuring process, at a rate to be determined in good faith with Noteholders,” said Yamba. “The Government would like to take this opportunity to reiterate its strong desire and willingness to use this standstill to engage, with the assistance of its financial and legal advisors, in a collaborative and constructive dialogue with all its creditors to design a sustainable debt strategy in the weeks and months to come.”

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