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Zambia to pay less following debt restructuring deal – Musokotwane

Finance Minister Situmbeko Musokotwane

Minister of Finance and National Planning Situmbeko Musokotwane says the debt restructuring agreement will enable the country pay its official creditors US$750 Million for the next ten years compared to the US$ 6.3 billion that was supposed to be repaid in the same period.

Mr Musokotwane says the agreement is a significant debt relief to the country as it will channel some of the resources in different sectors of the economy by embarking on developmental projects and investment programs that will be generating revenue for the country.

He noted that the previous contractual arrangements did not serve well for the country adding that close to 40% reduction of debt burden was recorded as a result of the postponement of repayments and a reduction in interest rates.

The Minister said this in parliament when he gave an official statement on the debt restructuring agreement.

“The postponement of payments through extended maturities will generate about US $5.8 billion in debt service savings over the period 2023-2031. Therefore, Zambia will be paying its official creditors about US $750 million only over the next ten years, compared to about US $6.3 billion that was supposed to be re-paid in the same period, under the previous contractual arrangements.

“In economic terms, or should I say considering the time value of money as described in the IMF’s Debt Sustainability Framework, the agreement delivers close to 40 percent reduction of our debt burden as a result of the postponement of repayments and a reduction in interest rates,” the Minister explained.

Mr Situmbekko added that the agreement with the official creditors has several benefits for the country adding that one of them is that It will generate US$5.8 billion in debt service savings which unlock resources that can be utilized for our developmental programs.

He explained that the agreement will also unlock extra funds from cooperating partners stating that this year both the International Monetary Fund IMF and the World bank will disburse funding to Zambia amounting to US$188.8 million and US$75 million respectively.

Mr Musokotwane said this will result in positive cash flow for the country as opposed to the situation without a debt restructuring agreement in place.

“It is true that debt servicing will resume in three years, the effect of the restructuring reduction in principal payable due to stretching the maturity as well as lower interest rates means that the annual cost for debt servicing will be very low. This means that Zambia will enjoy positive cash flow when one compares the debt outflows versus the debt inflows and the extra cash will be available for development,” Mr Musokotwane noted.

He said the agreement will also provide a pathway to restoring debt sustainability in the medium term, thereby leading to an improved macroeconomic environment in particular the impact on exchange rate stability should be tangible.

Mr Musokotwane further noted that some of the locally issued treasury bonds are bought by non-residents who bring in foreign exchange and that before the restructuring agreement was reached many new investors in the bonds held back their foreign exchange.

He said the government is keen on ensuring that the country should never find itself in a position of unsustainable debt accumulation adding that It is against this background that the Public Debt Management Bill was introduced in parliament which requires the executive arm of government to seek authority to borrow funds from the Legislature through the Annual Borrowing Plan.

“Allow me to express the government’s gratitude to all our official bilateral creditors for the favourable debt restructuring agreement that was reached on 22nd June 2023. Special thanks go to the Co-Chairs, France and China as well as South Africa who were the Vice Chair of the creditor committee. We are also indebted to the Paris Club Secretariat for their unwavering support. I would also like to extend our heartfelt gratitude to the International Monetary Fund and the World Bank that have stood with us during this period, “Mr Musokotwane stated.