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Zambia has finally reached an agreement on a comprehensive debt treatment with its Official Creditors under the G20 Common Framework after several years of back and forth.
The agreement is expected to pave the way for the approval by the International Monetary Fund (IMF) Executive Board of the first review of the Fund-supported program in the coming weeks, allowing for the next tranche financing of about US$188 million to be disbursed.
Under the agreed terms, the Official Creditors will provide a debt treatment contingent on Zambia’s debt-carrying capacity at the end of the Fund-supported programme.
This will be assessed under the IMF and World Bank Debt Sustainability Framework for Low Income Countries and will take account of the country’s economic performance and progress in strengthening economic policymaking.
The agreed debt treatment will be adjusted if conditions improve enough to justify an upgrade from “weak” to “medium” debt carrying capacity, in which case principal reimbursements would be accelerated and interest payments increased. This debt treatment ensures that Zambia achieves debt sustainability in all cases.
The terms of the agreed treatment will be further described and formalised in a Memorandum of Understanding between Zambia and Official Creditors, which will then be implemented through bilateral agreements with each member of the Official Creditor Committee.
This agreement marks a crucial milestone in Zambia’s ongoing efforts to strengthen its economy and improve the quality of life for its citizens, says Finance and National Planning Minister Dr Situmbeko Musokotwane in a statement on Thursday night after reaching the deal.
Read more: Zambia’s official creditors meet, IMF hopeful of debt relief soon
“Today is a big day for Zambia as we reach an agreement with our official creditors on a debt treatment plan. We are grateful for the support from our official creditors in resolving Zambia’s debt overhang that has been choking our economy.
“We will now work to achieve a swift resolution with our private creditors and deliver opportunity and economic stability to the Zambian people,” Musokotwane said.
Meanwhile, the IMF Managing Director Kristalina Georgieva said the agreement paved way for the completion of the first review of Zambia’s three-year Extended Credit Facility Arrangement, which is helping put Zambia on a path toward sustainable economic growth and poverty reduction.
Georgieva said this unique and innovative agreement specified both a baseline and a contingent treatment that would be automatically triggered if the assessment of Zambia’s economic performance and policies improves.
“I want to thank the official creditor committee, especially co-chairs China and France and Vice-Chair South Africa, for all their work to reach this agreement. This is a significant milestone for the G20 Common Framework under which China, India, Saudi Arabia and Paris Club creditors joined forces to agree deep debt relief for Zambia.
“I look forward to the Executive Board taking up this review in the coming weeks and the continuation of our productive collaboration with Zambia in the period ahead,” she said.
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