The clock is ticking for Zambia to convince reluctant bondholders to accept an interest-payment holiday while it works out a debt-restructuring strategy.
If investors refuse Zambia’s request for a six-month standstill in a key vote today, it may become the first African nation to default since the onset of the coronavirus.
That could set a precedent for how cash-strapped governments treat private and Chinese creditors.
Zambia is not making it any easier for bondholders to give it breathing space.
Days after the government said it didn’t have the cash, it skipped a $42.5 million coupon payment — only for Finance Minister Bwalya Ng’andu to tell lawmakers the Treasury could have paid if it wanted to.
That may leave investors doubting the government’s will to tackle its debt problems in the run-up to elections in August.
“Zambia may very well be the most prominent battleground that this tension between creditors plays out,” said Irmgard Erasmus, an economist at Paarl, South Africa-based NKC Africa Economics. “Eurobond holders, in particular, are certain to use all the weapons in their arsenal to limit moral hazard to the rest of sub-Saharan Africa.”
Zambia skipped the coupon on the recommendation of its advisers, according to Dr Ng’andu.
“They were of the strong view and opinion that if we pay we were going to create a very hostile environment within which to negotiate with other creditors,” he told lawmakers Oct. 15. “Because, we would have departed from the principal of pari passu.”
A group that holds about 40% of Zambia’s $3 billion in outstanding Eurobonds has already said it won’t support the proposal.
The government has a 30-day grace period to make the interest payment it missed last week before a default event occurs, which would allow bondholders to demand immediate repayment of the principal.
Dr. Ng’andu, who started the job last year, needs to balance the competing interests of Eurobond holders and mainly state-owned creditors from China, to whom Zambia owes even more money.
Eurobond holders are demanding greater transparency and an endorsement from the International Monetary Fund.
Zambia says it is treating all creditors equally.
The government hired Lazard Freres as financial advisers in May to assist with what it called a liability management exercise of its then $11.2 billion in external debt.
The copper producing nation’s debt has since shot up to almost $12 billion, and a messy default is becoming increasingly probable.
Lungu and his misguided PF have mismanaged the economy ,severely slowed the growth momentum and heightened debts. THIS CRISIS IS 100% ON THEM.
And then someone has the audacity to want to be voted back in 2021!!
Learn to acknowledge the source of your stories
Ken James maybe its typical of today’s media monitoring social media and speculating with no back up facts .
Bashi Mwana the story is from Bloomberg
We are in trouble
Pressure is on creditors to create these relief packages amid the pandemic. Major economies are in recession. G8, G20 countries are already deferring debt repayments. IMF and other global financial institutions are pushing countries to set up relief packages to help stimulate the sluggish global economy. A solution shall be found.
Covid is a blessing for lungu , he can now blame every thing on covid even though every economic indicators has been in decline ever since lungu came on.
He does not care about having a bad credit file…….that is why in his personal life every thing he touched failed. He even went on to lose his lawyers lisecence because of fraud….
And you think some one like him can handle the finances of a country ???
Another sensationalist article aimed at scaring zambians. Only f00ls would vote to never see their money. We are too busy developing our country to be worrying about numbers. We will leave that to hh
Only KZ can comment now on LT
Continue burying your heads in the sand – bondholders are blind when pursuing their returns – this was a commercial agreement and will stick as long as it takes. Brace for it – ask Bwalya Ng’andu
We warned you and you called us names and wait for the basic shortage of fuel commodity and that will be the beginning of Edgar Lungu’s downfall.
With him or will be terrible.
PF must go!
The Masonics are happy!
The bondholders can take up the debt issue at the international court and request for a freeze on Zambias external assets to recover their money.
Someone here is so dull and does not understand this.
You have hit the nail on the head, the issue is dullness, how do you praise a government where all economic indicators are down, and the downward trajectory started way before covid, even in a home, do you recklessly borrow to a level where your head is chocked.
“Lungu and his misguided PF have mismanaged the economy ,severely slowed the growth momentum and heightened debts. THIS CRISIS IS 100% ON THEM.”
This crisis is on every single neoliberal politician and party that listened to the IMF/WB/Rothschild/Lazard/Glencore/Anglo-American Corporation/De Beers for their advice.
““Eurobond holders, in particular, are certain to use all the weapons in their arsenal to limit moral hazard to the rest of sub-Saharan Africa.””
A lot of the problems and loss of revenues would have been prevented by collecting the Windfall Tax from the mines, instead of forfeiting billions of dollars in taxes, and take on their Eurobond debt instead – to be paid back, with interest.
That was straight up theft of public resources. Debt instead of taxes – and this was never discussed in parliament. Why? Because it was a crime that could not withstand public scrutiny. The Eurobond issuers brougth this upon themselves.
Time to default. It is telling that they would make an example of Zambia because of ‘moral hazard’ of not paying odious debts.
Zambia is doomed if ecl is voted back.
We were doomed immediately we allowed the poor failures to get into power……now, everyone is crying apart from the PF a.k.a Pompwetic Fraudsters