Zambia is Africa’s first pandemic-era default

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Zambia could have paid a $42.5 million coupon on its sovereign dollar bond last Friday, but chose not to do so due to the need to treat all creditors equally, the copper producer’s central bank governor said on Wednesday.

Zambia became Africa’s first sovereign pandemic-era default after it failed to pay the coupon at the expiry of the grace period on Friday.

Holders of Zambian Eurobonds had rejected a government request to defer interest payments until April.

Facing the impact of the coronavirus pandemic and a limping economy, Governor Christopher Mvunga said that Zambia was seeking broad debt relief, including within the framework of a debt service suspension backed by the Group of 20 wealthy nations.

“One of the conditions is that all creditors have to be treated equally. ... It’s not that we could not pay. It’s just that if we pay one creditor then we need to pay all the creditors,” Mvunga said.

Mvunga also said on Wednesday that the central bank had left its main lending rate unchanged at 8.0% at its most recent monetary policy meeting.

Successfully navigating the debt restructuring process to restore debt sustainability and implementing fiscal and other structural reforms are critical to return to fiscal fitness and macroeconomic stability.
Governor Christopher Mvunga

Inflation, which rose to 16% in October from 15.7% in September, is expected to average 16.7% in the fourth quarter, before declining to 13.5% next year.

Gross international reserves, meanwhile, slipped by $111.8 million to around $1.32 billion, or 2.3 months of import cover, from end-June to end-September, because of increased foreign exchange sales and debt service payments.

Eurobond holders have criticised the government, saying its lack of engagement had made providing near-term debt relief impossible.

One creditor group said it may consider other options in the wake of the default, setting the stage for a potentially acrimonious debt restructuring.

Read: Ramaphosa reprimands Mboweni over Zambia tweets

Mvunga said Zambia’s finance ministry, which said on Friday it was in talks with the International Monetary Fund, was continuing to seek solutions with all its creditors.

“Successfully navigating the debt restructuring process to restore debt sustainability and implementing fiscal and other structural reforms are critical to return to fiscal fitness and macroeconomic stability,” he said.

Zambia’s three defaulted sovereign-dollar bonds are trading just over 43 cents on the dollar, according to Tradeweb data. – Reuters


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