Zambia’s Ministry of Finance announced on Saturday at the IMF/World Bank annual meeting in Morocco that Zambia had agreed to a long-sought debt agreement with foreign financial institutions.
The move will provide financial relief to the country, which became Africa’s first country to default on its debt in 2020 after the coronavirus pandemic.
“The Ministry of Finance… is pleased to announce that a comprehensive debt settlement memorandum (MoU) has been agreed with the Government Creditors Committee (OCC),” the ministry said.
“Each official creditor will now begin an internal process to sign a memorandum of understanding.”
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Zambia reached an agreement in principle with its creditors, including China and Western countries, on a $6.3 billion debt in June, but the deal has not yet been finalized.
The International Monetary Fund said earlier this week that the deal was expected to be signed soon after the agency’s head prematurely announced that it had been signed.
Zambia’s Finance Minister Situmbeko Msokotwane said: “The next step is to secure parity agreements with private creditors.”
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“Our government is working to resolve the growing debt that is choking our economy, and I am proud of the great progress we have made. It will free up vital financial resources to invest in development challenges.”
Concerns about the debt of low-income countries are at the forefront of the IMF-World Bank meeting in Marrakech, the first to be held in Africa since 1973.
Central banks around the world have been raising interest rates to curb inflation, which rose after the lifting of coronavirus restrictions and rose even more after Russia’s invasion of Ukraine.
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Zambia had a total debt of $32.8 billion at the end of 2022, and defaulted on $18.6 billion of external debt in 2020, at the height of the COVID-19 pandemic.
Msokotwane said this week that 90 per cent of the country’s budget would go toward paying civil servants and repaying debt.
From day one, IMF Managing Director Kristalina Georgieva said hosting the IMF-World Bank meeting in Africa was of “huge symbolic and substantive importance.”
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“A thriving global economy in the 21st century requires a thriving Africa,” she said.
More than 20 African countries are already in or on the brink of a debt crisis.
In some countries, more than 40% of state budgets go toward debt servicing, an unsustainable level in countries that need to maintain basic public services like water and electricity.
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However, in addition to private financial institutions, new creditors such as China, Saudi Arabia, and Brazil have emerged, and debt restructuring negotiations are becoming more complex year by year.
Currently, each country must negotiate terms with China and the Paris creditors. The Paris Club is made up primarily of Western countries and has completely different policies than the Chinese government.
Zambian President Hakainde Hichilema visited China, the country’s main creditor, last month.
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