(Bloomberg) — Zambia is working to finalize a long-delayed debt restructuring that would give it “headroom” to attract investment and jump-start economic growth, a senior government official said.
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Negotiations to revamp foreign debt have taken longer than expected, and now the government is waiting on creditors to complete a deal, said Thabo Steven Kawana, permanent secretary at the Ministry of Information and Media.
“We’re just asking for space for us to regroup, so we have the capacity to grow the economy in order to pay back debt,” he said in an interview in Bloomberg offices in New York on Friday.
Zambia, which became the first African country to default on its debt during the Covid-19 pandemic in 2020, struck an agreement last year with a group of government lenders, including China and France, to rework $6.3 billion in loans. It restarted negotiations this week with investors holding about $3 billion of Eurobonds, according to people familiar with the matter.
Zambian sovereign bonds have delivered 16% returns to investors this year, compared with an average return of 2% for emerging-market government debt, according to data compile on a Bloomberg index.
Kawana said that after the debt restructuring is concluded, President Hakainde Hichilema’s administration can focus on bringing investment to sectors including mining reserves of cobalt, a key material for the production of electric-vehicle batteries.
“Give us a bit of headroom,” he said. “If that is achieved, then you will begin to see how all the plans we have to grow our economy will be rolled out.”
Zambia has been pursuing the debt restructuring under the Common Framework, which the Group of 20 drew up in late 2020 to help poorer countries overhaul loans with all creditors. Fellow African defaulter Ghana is also seeking a deal under the initiative, which has been criticized for causing delays.
“We are at the point where the whole world is watching to see how Zambia will come out of this,” Kawana said, adding that he wasn’t authorized to speak on the status of the talks with creditors.
The southern African nation of 20 million is suffering a prolonged drought that has damaged crops and dried up water sources for hydropower generation, leading the government to import energy and foods. That’s having fiscal implications and raising the needs for funding, according to the International Monetary Fund.
The economy is forecast to expand 3.9% this year before growth picks up to 4.2% next year, according to the central bank’s February monetary policy report. The bank warned that the prolonged debt restructuring threatens to limit capital inflows, pressuring the foreign exchange market.
The kwacha has weakened 2.5% against the USD this year, compared to a 1% decline for the MSCI index of emerging-market currencies, according to data compiled by Bloomberg.
The government is seeking to attract foreign companies, Kawana said.
“We are looking for worthwhile investors just to come and set up plants, manufacturing plants,” he said. “It is an environment that one would want to put their money because not only is it safe, but it is able to grow.”
In a recent deal that serves as a model for what Zambia’s government is pursuing, the Mopani copper mine got a $1.1-billion investment from Abu Dhabi’s International Resources Holding, which took over the mine with a 51% stake.
“It’s a big breather,” said Kawana. “We are going to have the mine operating again. We’re going to have people reemployed, we’re going to have suppliers reengaged. So it has brought back life.”
–With assistance from Matthew Hill.
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