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China and other creditors have reached a deal to restructure multi-billion dollar loans to Zambia.
The deal ends a long deadlock over the 2020 default of a southern African country that has exposed a rift between Beijing and Western financial institutions over how to resolve a mounting debt crisis in the developing world. It is a thing.
Zambia’s finance ministry said in a statement on Thursday that creditors had “significantly extended maturities and reduced interest rates” after the government of French President Emmanuel Macron cooperated in reaching a deal at the global financial and climate summit in Paris. announced that it had accepted
Zambia’s Finance Minister Situmbeko Musokotwane said: “Today is a big day for Zambia… We appreciate the support from official creditors in resolving Zambia’s insolvency that is weighing on the economy.”
Africa’s second largest copper producer is financially strapped and unable to continue receiving a $1.3 billion IMF bailout, leaving the country’s biggest creditor China and other financial institutions with a value of around $13 billion. have been clashing for months over a proposal to cut it by about half. Percentage of total external debt.
Under the breakthrough, China-led bilateral financial institutions readjusted payments, agreed to extend the maturity of $6.3 billion in loans, Zambia resumed funding from the IMF, and a further $6.8 billion The way was paved to rebuild the dollar’s private debt.
“Today we can say that there has been an agreement on the framework of the debt restructuring,” said a French official. “Negotiations that began months ago have reached the final stage.”
The deal was a diplomatic victory for Mr Macron at a high-profile summit that brings together world leaders to discuss reforming lending systems between rich and poor countries.
Zambia’s agreement will also raise hopes for other countries such as Ghana and Ethiopia. The two countries are in similar talks toward a debt restructuring largely financed by China, which has become the single largest lender to developing countries over the past decade.
China is reluctant to accept direct write-downs on foreign loans by its banks and, in the case of Zambia, has proposed to multilateral development financial institutions such as the World Bank to take the unprecedented step of participating in the restructuring. rice field.
Under the Zambia Accord, bilateral creditors commit to extend loans for more than 20 years, with a grace period of three years on interest payments.
Bankers close to the negotiations said a full restructuring of Zambia’s external debt still required an agreement with private creditors, including the country’s $3 billion worth of eurobond holders, but an agreement among official creditors was “real.” progress,” he said.
A bond investor who attended the talks said the development bank would likely offer a concessional loan rather than a debt write-down as a means of exiting the deal.
Concerns about domestic financial stability prompted Zambia to exclude its local currency bonds from the restructuring, including foreign-held local currency bonds. The Treasury Department announced Thursday that public creditors have agreed to accept the position.
The deal would also revise debt relief measures if Zambia’s economy performs better than expected in the long term, which some creditors say current targets, such as the debt-to-export ratio, are too pessimistic. may agree to the contrary.
The investor said foreign buyers of Zambia’s domestic public debt have increased their holdings from $3.2 billion to $20 billion since late last year over concerns that domestic borrowing could be included in restructurings, as in Ghana and Sri Lanka. He said it appears to have been reduced to less than a billion dollars.
The Lusaka Ministry of Finance said last October that the repayment of these holdings would absorb about 80% of the funds available to service foreign debt. A sharp reduction in foreign holdings of domestic bonds would free up more money for other creditors, including China, the investor said.
“For China, the ultimate goal is to take responsibility for the dire and unsustainable conditions in which many highly indebted economies find themselves, while spreading responsibility more broadly,” said Eswar Prasad, an economics professor at Cornell University. It seems like a solution to limit the financial loss.”