Zambia is seeking to restructure its debt after years of “over-ambition” in borrowing to plug an infrastructure deficit, Finance Minister Bwalya Ng’andu said.
The southern African nation has stopped taking on new commercial debt and is seeking to cancel some loans that it’s contracted but not yet received, he said in an interview with the state broadcaster. Zambia also aims to restructure loans already disbursed as the government strives to achieve debt sustainability that would allow it to tap emergency financing from the International Monetary Fund, he said.
It’s Ng’andu’s strongest admission yet that Zambia’s debt has surged to unsustainable levels. He also referred to restructuring to describe what the government has so far called a “liability management exercise” of its external debt. The finance ministry is seeking financial advisers for this process, which will include all of Zambia’s external debt.
The global economic crisis caused by the spread of the coronavirus is exacerbating economic risks in Africa’s second-biggest copper producer. Foreign-exchange reserves were at a record low in January, already below levels to cover external debt servicing this year.
“There was an over-ambition in terms of borrowing,” he said. When asked if the nation’s debt was unsustainable, Ng’andu said “everybody knows that.”
The finance ministry has written to lenders with which it had contracted debt, but not yet received the money, asking them to cancel or reduce the projects, the minister said.
In the three months since these requests, most haven’t yet responded, and the government believes it can cut future debt by as much as US$3.1B through this initiative, Ng’andu said. In February, he said the government could reduce the total US$7B of contracted but undisbursed debt by about US$5B.
Zambia is also planning to restructure loans it’s already received and in its external debt count, which totalled US$11.2B at the end of last year including US$3B in Eurobonds.
“The idea was to begin the process of restructuring — talking to the lenders with the view to restructure the loans,” Ng’andu said. “We have gone in this process by seeking to get professional advisers on debt. There was a process which has been completed last week of assessing possible friends that can work with us in terms of helping us to restructure our debt.”
The government won’t force restructuring on any of its creditors, it said last month.
The outbreak has caused a government financing gap of at least 20 billion kwacha (US$1.09B) to 29 billion kwacha this year — as much as 40% of planned revenue — so the budget will need to be revised, Ng’andu said.