THE ZAMBIA CSO DEBT ALLIANCE’S REACTION TO THE BONDHOLDER AGREEMENT
THE Civil Society Organisation’s Debt Alliance views positively the latest agreement reached between the Zambian government and the ad hoc creditor committee representing Eurobond Holders, on March 25, 2024.
This marks a significant milestone in the country’s debt restructuring process. The agreement builds upon the in-principal proposal reached in November last year, offering enhanced terms for both parties involved.
Under the new agreement, investors will receive bonds with a face value of US$3.05 billion, representing a reduction from the accumulated US$3.98 billion, inclusive of unpaid interest.
Notably, bondholders have agreed to increase their haircut to US$840 million, up from US$700 million proposed in the previous deal negotiated in November 2023.
Furthermore, the agreement is expected to unlock US$2.5 billion in cash flow over the duration of the country’s International Monetary Fund (IMF) programme, a crucial development for its economic recovery efforts.
While bondholders will still receive a 10 percent higher return on their investments compared to official creditor counterparts, the Alliance notes that this new deal is consistent with the comparability of treatment principle as assessed by official creditors and adheres to the parameters outlined under Zambia’s Extended Credit Facility (ECF) programme supported by the IMF.
We are confident that the revised restructuring terms offer significant upfront debt relief and future relief proportional to the country’s economic progress in the years that lie ahead.
This development will also allow for the standing default rating on Zambia’s Eurobonds to be cured. This will be a step toward attracting more investment inflows to Zambia and ultimately support the restoration of Zambian economy.
Furthermore, we anticipate that as the government promptly engages with other private creditors, they will equally grant Zambia the much-needed relief so that the country can have a clear picture on its debt obligations.
It is also essential to note that while the agreement includes provisions for an accelerated repayment schedule in the event of economic improvement, there are no corresponding triggers to adjust repayment terms in the event of economic deterioration.
This underscores the importance of Zambia’s commitment to building economic resilience to navigate through future uncertainties.
Furthermore, according to the new deal, the entire debt restructuring agreement may collapse in the event that Zambia defaults on its debt payments during the term of the existing IMF programme.
Therefore, it remains important for Zambia to enhance its domestic revenue mobilisation efforts, prioritise prudent fiscal management, and operationalise the sinking fund to ensure long-term stability as the country prepares to resume its debt restructuring obligations mid this year.