Lusaka, Zambia – 29th May 2024
The recent developments regarding the Eurobond restructuring deal between the Government of the Republic of Zambia and the bondholders has generated both economic and business interest in the country requiring the Economics Association of Zambia (EAZ) to issue a statement and provide some light on the matter.
The current situation is that the bondholders have positively responded to the call for consent to the restructured terms of the initial $3 billion Eurobond whose claim had grown to about $3.98 billion by 2024 owing to accumulated interest and penalties. This has meant that the country’s credit rating has remained low indicating that the country still remains highly credit risk. However, the development gives confidence that the bondholders considered the new terms as favourable for both Zambia and themselves under the prevailing credit state. Further, the development is also a positive score towards the achievement of the objectives of the G20 countries’ Common Framework for the same treatment of Zambia’s debt restructuring process by all creditors.
Fellow countrymen, women and youths, the consent solicitation issued to Eurobond holders on the 13th May 2024 was a critical step in arriving at the current Eurobond restructuring deal. The EAZ therefore commends the Government's unwavering efforts in navigating this debt sustainability and macroeconomic stability path. However, this is just the beginning to improving the sovereign risk which is still high. The sovereign risk in an impediment to rapid economic growth and development, since risk averse investors have been reluctant to invest large amounts capital in the Zambian economy. As a result, Zambia’s balance sheet still remains very small. Implicitly, the country’s net worth remains small and this drives out good investors from the economy.
However, the full restructuring of the Eurobond under the restructured deal will see
Zambia receive a cashflow relief of about $2.5 billion until 2025 when the International Monetary Fund Extended Credit Facility comes to an end. Achieving the minimum subscription threshold after tweaking the structure of the coupons for the two new bonds A ($1.7billion) and B ($1.35billion) in the face of the current climate change induced drought is therefore a big milestone.
Going forward, in the spirit of transparency and accountability, it is the position of EAZ that Government should clearly spell out the timelines for signing of the final actual agreements with both bilateral and Eurobond creditors to effect the new terms, since prolonging the process may further give uncertainty in the economy and erode the credit status gains.
Further, the EAZ implores Government to formulate a clear road map for resource mobilization specifically for all the debts that were under debt service suspension as the current development on the Eurobond will imply transitioning towards resumption of debt servicing. The Government must consider prevailing economic conditions and ensure that debt obligations are manageable within the broader fiscal framework.
Looking ahead, the EAZ notes that while progress has been made in restructuring a significant portion of Zambia's private credit, there is a pressing need, in the midst of a national drought disaster, to expedite the restructuring and refinancing of the remaining 25% private external public credit using low-cost green and sustainability finance instruments available on the international market. Delaying this process could prolong uncertainty and hinder Zambia's efforts to restore fiscal stability.
The EAZ remains committed to providing economic information to the general public especially on emerging issues related to Zambia's debt management strategies. We emphasize the importance of implementing effective fiscal policies to enhance public finance effectiveness and promoting transparency in debt restructuring conversations as guided in the Public Debt Management Act No. 15 of 2022 to ensure long-term debt sustainability.
For further inquiries, please contact: Secretariat on +260979697853, or email:
secretariat@eaz.org.zm
Dr. Oswald Mungule
President - Economics Association of Zambia