Zambia has asked private holders of its $3 billion Eurobond to suspend debt service payments for a period of six months. In an address, President Edgar Lungu asked the holders to accept delays in their interest payment beginning in October into next year.
Zambia floated the first Eurobond in 2012 and followed up with two more in 2014 and 2015 amounting to $3 billion. As of December 2019, foreign debt hit $11.2 billion with the IMF warning that the southern African nation risked plunging into debt distress.
Zambia is likely to be the first African country to default private dollar-debt since the start of the pandemic. President Lungu blames the growth in unbudgeted costs occasioned by the COVID19 pandemic and declining revenues for the debt default.
Lungu said that the pandemic affected the government’s ability to make timely payments. The local currency has depreciated in 2020 while forex reserves have slid to a record low, further constraining external debt payments.
Furthermore, Zambia faces an imminent recession, the first in more than 20 years with the IMF projecting a 5 percent contraction in 2020.
Lungu added that the government would hold talks with the investors where two-thirds must consent for the deferral plan to sail through. Lungu proposed the suspension of interest payment from mid-October to mid-April.
Zambia in Talks for Debt Restructuring