Zambia faces a crucial vote that could see it become the first African country to default on sovereign debt payments since the outbreak of the coronavirus was declared a global pandemic almost eight months ago.
Holders of its $3 billion in Eurobonds attending meetings at a law company in London on Friday are expected to reject a government request for a payment holiday after the government last month missed an interest payment on $1 billion of bonds due 2024. A 30-day grace period expires on Friday, and should the vote go against Zambia it would put the country in default, giving investors the right to demand immediate repayment of the principal.
The 2024 notes fell for a third straight day Thursday, dropping 1% to 44.9 cents on the dollar.
“Zambia is mere hours away from being declared in default,” said Irmgard Erasmus, an economist at NKC Africa Economics in Paarl, near Cape Town. Zambia’s souring relationships with creditors and multilateral organizations after years of spendthrift policies and corruption allegations “create a more hostile environment in which to negotiate a complex restructuring,” she said.
Breathing Space
Finance Minister Bwalya Ng’andu has said Zambia needs breathing space from all external creditors while it negotiates a comprehensive reprofiling of its debt. Bondholders are skeptical and have demanded more transparency from the government of Africa’s number-two copper producer, particularly with regard to debt due to Chinese lenders. They also want to see progress in reaching a deal with the International Monetary Fund on an economic recovery program.
The government has failed to show progress on either, according to Patrick Curran, an economist with Tellimer, an emerging-markets research firm. The finance ministry didn’t respond to multiple calls and messages seeking comment.
While the pandemic has worsened Zambia’s economic troubles, the government ignored warnings about its borrowing for years. External debt has soared to about $12 billion, and total government borrowing will reach 120% of gross domestic product this year.
Zambia still has a glimmer of hope, though. Also on Friday, creditors from the Group of 20 largest economies are set to announce a so-called “common framework”, which could provide a road map for dealing with official and private creditors of poor countries struggling to meet their obligations.
-Bloomberg
