Zambia becomes first country to complete full-blown rework under G20-led ‘Common Framework’

Zambia may be on the way to finally drag itself out of debt crisis by clinching deals with the International Monetary Fund (IMF) and its creditors, including bondholders.

On Tuesday, the country’s international bondholders voted on a US$13.4 billion debt restructuring deal and made Zambia the first to complete a full-blown rework under the G20-led ‘Common Framework’ architecture.

This had left some hard lessons for richer nations about how their much-vaunted debt relief plan performed, according to a report by Reuters.

Director of Debt Management at Zambia’s Ministry of Finance and National Planning, Masitala Mushinga, recalled how the country had been caught up in the middle of China, its biggest creditor and bondholders who did not agree on what constituted “comparable” debt relief.

Mushinga said Zambia was confident and relaxed at the beginning of the process, but quickly found itself caught between the likes of China, its biggest creditor, and bondholders who did not agree on what constituted “comparable” debt relief.

“The two elephants were there fighting and we were right there in the middle without any real assets, so to speak, because we didn’t know how the process should play out,” she said at the Paris event.

Bondholder Committee Member, Thys Louw, at South Africa-based investment firm NinetyOne thought, however, that the struggles in Zambia were deep rooted and that the idea that restructurings have lots of “common” features is a fallacy.

“We were always optimistic in terms of engagement, but Zambia became essentially the battleground, the collateral damage in the broader themes at play,” Louw said, pointing to both the West’s hawkishness towards China and the concern initially that a wave of defaults was approaching.

Meanwhile, Former IMF General-Counsel Sean Hagan and Sovereign Debt Specialist, Brad Setser, highlighted how clause inserted in the new deals mean Zambia would make extra payments if it recovered fast.

Those additional payments though could push its debt back up to a level where the IMF said it was at high risk of debt distress again though.

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