Ania Nussbaum, Taonga Mitimingi and Matthew Hill
Fri, June 23, 2023
(Bloomberg) -- Zambia reached an agreement in principle to restructure $6.3 billion of debt with bilateral lenders, setting a precedent for a growing list of countries struggling to service their liabilities. The nation’s dollar bonds rose.
On Twitter, Zambian President Hakainde Hichilema called the agreement “a significant milestone in our journey towards economic recovery and growth.”
The accord marks the first major relief won by a developing country under the Group of 20 nations’ Common Framework that brings the traditional creditor nations of the Paris Club around the same negotiating table with China and India.
Details remain unclear, beyond that the creditors led by China and France agreed to extend the maturities on their loans over some 20 years, with a three-year grace period, according to a French official, who announced the deal on Thursday.
Calling the pact a “significant milestone” for the Common Framework, IMF Managing Director Kristalina Georgieva said creditors agreed “deep debt relief for Zambia.”
It specifies both a baseline and a contingent treatment that would be automatically triggered if the assessment of Zambia’s economic performance and policies improves, she said in a statement, without providing more detail.
Urge Conclusion
US Treasury Secretary Janet Yellen, who has long sought solutions on the debt issues plaguing Zambia and other emerging nations, welcomed the consensus.
“During my trip to Zambia earlier this year, I saw firsthand how the weight of default and a stalled debt-restructuring process can bring suffering to ordinary families and hold back economic growth,” she said in a statement. She urged creditors to finish restructuring the debt quickly.
The parties are expected in coming weeks to sign a memorandum of understanding for the debt treatment that Zambia’s finance ministry said included “significant maturity extensions and reduction in interest rates.”
This could lead the way for other nations — including Ghana, Sri Lanka and Ethiopia — locked in negotiations with creditors from China, the Paris Club and bondholders. More than 70 low-income nations face a collective $326 billion burden, with more than half of them already in or near debt distress, according to the IMF.
Zambia’s dollar bonds gained Friday, with 2027 securities adding 3.5 cents to 54.26 cents on the dollar by 8:10 a.m. in London, according to CBBT pricing. Ghana’s 2030 dollar notes climbed a cent to 65.63. Dollar bonds of Sri Lanka and Pakistan also advanced.
“This agreement marks a crucial milestone in Zambia’s ongoing efforts to strengthen its economy and improve the quality of life for its citizens,” Finance Minister Situmbeko Musokotwane said in a statement. “We will now work to achieve a swift resolution with our private creditors and deliver opportunity and economic stability to the Zambian people.”
Zambia’s currency has rallied 12% this month in anticipation of the agreement, the biggest gain among 150 currencies tracked by Bloomberg. Its eurobonds have delivered a performance only exceeded by El Salvador and Argentina.
A meeting to mark the agreement will be attended by French President Emmanuel Macron, Hichilema and Chinese Premier Li Qiang on the sidelines of the Summit for a New Global Financing Pact in Paris, the French official added. It’s a major step in the process of ending the default of the first African nation to do so in the pandemic era, and will unlock a $188 million disbursement from the IMF.
Zambia’s private creditors “need to urgently agree significant debt cancellation,” says Tim Jones, head of policy at UK-based Debt Justice, previously known as the Jubilee Debt Campaign, which lobbies for poor countries’ loans to be written off.
The organization is calling external private and government lenders to cancel two-thirds of Zambia’s debt to place its finances on a more sustainable path.
Zambia in October said it was seeking to revamp $12.8 billion in external debt, and it’s unclear if this amount has changed following negotiations in which China called for more relief from lenders such as the World Bank, and for some of its own debts to be excluded. Zambia owed about $6 billion to Chinese lenders, around one-third of its total foreign liabilities.
Years of Waiting
While the memorandum marks a major milestone, it is not legally binding and Zambia still must sign bilateral agreements with each creditor. It has also yet to conclude restructuring talks with holders of $3 billion in eurobonds, which had accrued more than $500 million in arrears by the end of last year. Other commercial creditors are likewise yet to strike a deal.
The memorandum with the official creditors includes a clause requiring comparability of treatment for Zambia’s commercial debts, the French official said.
It gives Macron a concrete breakthrough at the summit he has convened in Paris to overhaul financing for the poorest countries that face the greatest funding risks. His administration was also a key proponent of the creation of the Common Framework to expand the Paris Club creditor group to include China in debt restructuring.
Key Details in Finance Ministry Statement:
Official creditors will provide a debt treatment contingent on Zambia’s debt-carrying capacity at the end of the 38-month IMF-supported program approved in August
The relief will be adjusted if conditions have improved enough to justify an upgrade from “weak” to “medium” debt-carrying capacity, in which case principal reimbursements would be accelerated and interest payments increased
--With assistance from Alan Katz and William Horobin.
Debt-plagued Zambia reaches deal with China, other nations to rework $6.3B in loans, French say
People gather to buy charcoal at a busy market in Lusaka, Zambia, July, 5, 2021. The French government says Thursday, June 22, 2023, that Zambia has reached a deal with China and several other government creditors to restructure $6.3 billion in loans.
People gather to buy charcoal at a busy market in Lusaka, Zambia, July, 5, 2021. The French government says Thursday, June 22, 2023, that Zambia has reached a deal with China and several other government creditors to restructure $6.3 billion in loans.
(AP Photo/Tsvangirayi Mukwazhi, File)
SYLVIE CORBET
Thu, June 22, 2023
PARIS (AP) — Zambia and its government creditors, including China, have reached a deal to restructure $6.3 billion in loans, the French government announced Thursday on the sidelines of a global finance summit in Paris.
The agreement covers loans from countries including France, the UK, South Africa, Israel and India as well as China — Zambia's biggest creditor at $4.1 billion of the total. The deal, announced by officials who spoke anonymously in accordance with the French government's customary practices, may provide a roadmap for how China will handle restructuring deals with other nations in debt distress.
The International Monetary Fund approved the deal, meaning it’s going to allow Zambia to receive more financing from the institution, the French said. A representative from the IMF did not immediately respond to a request for comment.
The Zambia deal came at a summit with more than 50 world leaders, finance officials and activists to discuss ways of reforming a global financial system to better help developing nations struggling with debt, climate change and poverty.
Zambia — the continent's biggest copper producer— became Africa’s first coronavirus-era sovereign nation to default when it failed to make a $42.5 million bond payment in November 2020. The debt has prevented the democratic nation from developing economically and taking on new projects. Experts have said such prolonged debt crises can send nations deeper into poverty and joblessness and exclude them from the credit they need to rebuild.
U.S. Treasury Secretary Janet Yellen, who is attending the summit, welcomed news of the Zambia deal. She visited Lusaka in January to meet with Zambian President Hakainde Hichilema and bring attention to the ramifications of its debt crisis.
“I saw firsthand how the weight of default and a stalled debt restructuring process can bring suffering to ordinary families and hold back economic growth,” Yellen said. She urged both official and private-sector creditors to quickly finalize debt restructuring to “encourage the private investment that is needed to jump-start the economy.”
Full details of the deal weren't announced. The French officials said Zambia's debt would be reorganized over 20 years, with a three-year grace period. It also includes a clause aimed at ensuring that Zambia gets similar treatment from private creditors, who hold an additional $6.8 billion in loans to Zambia, but it wasn't clear that those private creditors could be required to do so.
“Private creditors know they’re going to need to restructure (the debt), they have been warned they’ll need to make a similar effort,” a French official said.
A memorandum of understanding is expected to formalize the deal in the coming weeks.
The deal is the second to be agreed under a mechanism — called the Group of 20 Common Framework — created at the end of year 2020 to associate the Paris Club of government creditors and other major economies from the Group of 20, including China, in debt negotiations.
The first was struck last year with Chad.
Yellen has called for debt overhang in other countries like Sri Lanka to be addressed as well.
___
Associated Press reporter Fatima Hussein in Washington contributed to this report.
SYLVIE CORBET
Thu, June 22, 2023
PARIS (AP) — Zambia and its government creditors, including China, have reached a deal to restructure $6.3 billion in loans, the French government announced Thursday on the sidelines of a global finance summit in Paris.
The agreement covers loans from countries including France, the UK, South Africa, Israel and India as well as China — Zambia's biggest creditor at $4.1 billion of the total. The deal, announced by officials who spoke anonymously in accordance with the French government's customary practices, may provide a roadmap for how China will handle restructuring deals with other nations in debt distress.
The International Monetary Fund approved the deal, meaning it’s going to allow Zambia to receive more financing from the institution, the French said. A representative from the IMF did not immediately respond to a request for comment.
The Zambia deal came at a summit with more than 50 world leaders, finance officials and activists to discuss ways of reforming a global financial system to better help developing nations struggling with debt, climate change and poverty.
Zambia — the continent's biggest copper producer— became Africa’s first coronavirus-era sovereign nation to default when it failed to make a $42.5 million bond payment in November 2020. The debt has prevented the democratic nation from developing economically and taking on new projects. Experts have said such prolonged debt crises can send nations deeper into poverty and joblessness and exclude them from the credit they need to rebuild.
U.S. Treasury Secretary Janet Yellen, who is attending the summit, welcomed news of the Zambia deal. She visited Lusaka in January to meet with Zambian President Hakainde Hichilema and bring attention to the ramifications of its debt crisis.
“I saw firsthand how the weight of default and a stalled debt restructuring process can bring suffering to ordinary families and hold back economic growth,” Yellen said. She urged both official and private-sector creditors to quickly finalize debt restructuring to “encourage the private investment that is needed to jump-start the economy.”
Full details of the deal weren't announced. The French officials said Zambia's debt would be reorganized over 20 years, with a three-year grace period. It also includes a clause aimed at ensuring that Zambia gets similar treatment from private creditors, who hold an additional $6.8 billion in loans to Zambia, but it wasn't clear that those private creditors could be required to do so.
“Private creditors know they’re going to need to restructure (the debt), they have been warned they’ll need to make a similar effort,” a French official said.
A memorandum of understanding is expected to formalize the deal in the coming weeks.
The deal is the second to be agreed under a mechanism — called the Group of 20 Common Framework — created at the end of year 2020 to associate the Paris Club of government creditors and other major economies from the Group of 20, including China, in debt negotiations.
The first was struck last year with Chad.
Yellen has called for debt overhang in other countries like Sri Lanka to be addressed as well.
___
Associated Press reporter Fatima Hussein in Washington contributed to this report.
Explainer-What is China's position on restructuring debt owed by poor nations?
A Chinese national flag is pictured
A Chinese national flag is pictured
Wed, June 21, 2023
By Joe Cash
(Reuters) - China's Premier Li Qiang and dozens of world leaders will meet in Paris on Thursday and Friday to discuss ways to help low-income countries manage their debt burdens and free up funding for climate financing.
As the world's largest bilateral creditor, China is central to talks on making tangible progress in providing debt relief to Zambia, Chad, Ethiopia and Ghana through the Group of 20-led "Common Framework."
WHAT IS THE COMMON FRAMEWORK?
The Common Framework was set up by the G-20 in late 2020 during the COVID-19 pandemic as an initiative to expedite and simplify the process of getting indebted countries back onto their feet.
The aim was to bring together big creditors like China and the traditional group of developed creditor nations, known as the Paris Club, to negotiate restructuring plans with defaulters.
But nearly three years later, it is yet to provide any relief, partly due to disagreements between the rich countries and China, which over the past decade has emerged as a major international creditor.
WHAT IS CHINA'S POSITION ON DEBT RESTRUCTURING?
China wants multilateral lenders like the International Monetary Fund (IMF) and World Bank to absorb some of the losses, which those institutions and many developed nations, notably the United States, are resisting.
The U.S. and European governments have argued that acceding to Beijing's demand would be tantamount to a bailout for China.
A case in point is Zambia, which owes $6 billion to China and has been locked in default for almost three years. The southern African country has been unable to secure further loans from the IMF because Beijing insists multilateral development lenders, which don't usually take haircuts, should participate in debt relief.
The Common Framework requires debtor countries to secure restructuring assurances from any bilateral lenders first and commercial and multilateral lenders second - to Beijing's dismay.
China continues to negotiate with debtor nations on a bilateral basis, urging that debt disposal be dealt with on a "case-by-case" basis despite the Common Framework's aim to standardise access to debt relief.
China's central bank chief Yi Gang reiterated "China is willing to work with all parties to implement the Common Framework for debt disposal," at a gathering of G20 finance ministers and central bank governors at the World Bank and IMF Spring Meetings in Washington in April.
"Official bilateral loans related to China only account for less than 5% of Ghana's external debt," Mao Ning, a Chinese Foreign Ministry spokesperson, told a press conference in Beijing in March, when asked whether China would agree to restructure the $1.9 billion Ghana owes it.
"We call on multilateral financial institutions and commercial lenders, who are the main creditors for developing countries, to participate in developing countries' debt relief efforts," Mao said.
WHY IS CHINA WILLING TO WRITE OFF SOME DEBTS BUT NOT OTHERS?
In January, China's Foreign Minister Qin Gang announced a partial and undisclosed cancellation of the $13.7 billion that Ethiopia has borrowed from China since 2000 while visiting Addis Ababa.
And last August, China waived 23 interest-free loans to 17 African states that had expired at the end of 2021.
China's interest-free loans are funded from its foreign aid budget and are easier to waive.
Interest-free loans account for less than 5% of the $843 billion in Chinese loan commitments to 165 governments globally between 2000 and 2017, according to AidData.
WHAT SUPPORT IS CHINA OFFERING?
In early May, China attended the first meeting of Sri Lanka's creditor nations only as an observer. Japan, India and France initiated the discussions despite China being Sri Lanka's largest bilateral lender, with the island nation owing Chinese lenders $7.4 billion at the end of 2021.
In discussions over Ghana later in May, China took its involvement further and agreed to co-chair a committee of Ghana's official creditors alongside France.
And in Zambia's case, "China has always taken Zambia's debt issues seriously and will jointly work for a better solution," according to Wang Wenbin, another Chinese foreign ministry spokesperson.
WHAT NEXT?
In Paris, analysts expect China to continue to voice support for the Common Framework but for debt relief to be dispensed "case-by-case".
The last time global policymakers met to discuss the Common Framework in Washington, China proposed the IMF should speed up and improve information sharing on debt sustainability analyses.
China will need more coaxing before it agrees to haircuts.
(Reporting by Joe Cash; Editing by Ryan Woo; Editing by Shri Navaratnam)
By Joe Cash
(Reuters) - China's Premier Li Qiang and dozens of world leaders will meet in Paris on Thursday and Friday to discuss ways to help low-income countries manage their debt burdens and free up funding for climate financing.
As the world's largest bilateral creditor, China is central to talks on making tangible progress in providing debt relief to Zambia, Chad, Ethiopia and Ghana through the Group of 20-led "Common Framework."
WHAT IS THE COMMON FRAMEWORK?
The Common Framework was set up by the G-20 in late 2020 during the COVID-19 pandemic as an initiative to expedite and simplify the process of getting indebted countries back onto their feet.
The aim was to bring together big creditors like China and the traditional group of developed creditor nations, known as the Paris Club, to negotiate restructuring plans with defaulters.
But nearly three years later, it is yet to provide any relief, partly due to disagreements between the rich countries and China, which over the past decade has emerged as a major international creditor.
WHAT IS CHINA'S POSITION ON DEBT RESTRUCTURING?
China wants multilateral lenders like the International Monetary Fund (IMF) and World Bank to absorb some of the losses, which those institutions and many developed nations, notably the United States, are resisting.
The U.S. and European governments have argued that acceding to Beijing's demand would be tantamount to a bailout for China.
A case in point is Zambia, which owes $6 billion to China and has been locked in default for almost three years. The southern African country has been unable to secure further loans from the IMF because Beijing insists multilateral development lenders, which don't usually take haircuts, should participate in debt relief.
The Common Framework requires debtor countries to secure restructuring assurances from any bilateral lenders first and commercial and multilateral lenders second - to Beijing's dismay.
China continues to negotiate with debtor nations on a bilateral basis, urging that debt disposal be dealt with on a "case-by-case" basis despite the Common Framework's aim to standardise access to debt relief.
China's central bank chief Yi Gang reiterated "China is willing to work with all parties to implement the Common Framework for debt disposal," at a gathering of G20 finance ministers and central bank governors at the World Bank and IMF Spring Meetings in Washington in April.
"Official bilateral loans related to China only account for less than 5% of Ghana's external debt," Mao Ning, a Chinese Foreign Ministry spokesperson, told a press conference in Beijing in March, when asked whether China would agree to restructure the $1.9 billion Ghana owes it.
"We call on multilateral financial institutions and commercial lenders, who are the main creditors for developing countries, to participate in developing countries' debt relief efforts," Mao said.
WHY IS CHINA WILLING TO WRITE OFF SOME DEBTS BUT NOT OTHERS?
In January, China's Foreign Minister Qin Gang announced a partial and undisclosed cancellation of the $13.7 billion that Ethiopia has borrowed from China since 2000 while visiting Addis Ababa.
And last August, China waived 23 interest-free loans to 17 African states that had expired at the end of 2021.
China's interest-free loans are funded from its foreign aid budget and are easier to waive.
Interest-free loans account for less than 5% of the $843 billion in Chinese loan commitments to 165 governments globally between 2000 and 2017, according to AidData.
WHAT SUPPORT IS CHINA OFFERING?
In early May, China attended the first meeting of Sri Lanka's creditor nations only as an observer. Japan, India and France initiated the discussions despite China being Sri Lanka's largest bilateral lender, with the island nation owing Chinese lenders $7.4 billion at the end of 2021.
In discussions over Ghana later in May, China took its involvement further and agreed to co-chair a committee of Ghana's official creditors alongside France.
And in Zambia's case, "China has always taken Zambia's debt issues seriously and will jointly work for a better solution," according to Wang Wenbin, another Chinese foreign ministry spokesperson.
WHAT NEXT?
In Paris, analysts expect China to continue to voice support for the Common Framework but for debt relief to be dispensed "case-by-case".
The last time global policymakers met to discuss the Common Framework in Washington, China proposed the IMF should speed up and improve information sharing on debt sustainability analyses.
China will need more coaxing before it agrees to haircuts.
(Reporting by Joe Cash; Editing by Ryan Woo; Editing by Shri Navaratnam)
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