LUSAKA, Zambia – 27 July 2023 – Zambia Civil Society Organisation, Debt Alliance in partnership with African Forum and Network on Debt and Development, hosted a National Forum on Debt and Development under the theme: Reimagining, Rethinking, Reorganizing, and Remobilising for an Economically Strengthened Post-Debt Restructuring Zambia. (View photos here)
In attendance of this event was the Member of Parliament for Lunte constituency-Hon. Mutotwe Kafwaya, CSO Debt Alliance Coordinator-Mr Peter Mumba, AFRODAD Policy analyst and advocacy-Mr. Shem Joshua, ZIPAR Research Fellow Macroeconomics- Mr. Ignatius Masilokwa, Acting Assistant Director External Debt Ministry of Finance and National Planning- Ms. Maryanna Lwandamina-and other officials.
Speaking during breakfast meeting held at Radisson blu Hotel in Lusaka, CSO Debt Alliance Coordinator-Mr. Peter Mumba delivered a presentation on Zambia’s experience under the G20 common framework. According to the presentation, Mr. Mumba stated that, in the last decade Zambia experienced a slowdown in economic growth, with the growth rate dropping from 10% in 2010 to an average of 1.8% in 2019. Despite efforts to reduce poverty and inequality during this period, progress has been limited. The COVID-19 pandemic worsened the situation, causing the economy to shrink by approximately 3% in 2020. Prior to the pandemic, the country’s vulnerabilities were mainly due to a continuous decline in fiscal strength, which was linked to a fast-growing public debt. Public debt has had varying impacts on the economy. In 2020, almost half of the National Budget’s expenditure was spent on debt servicing costs. Additionally, the increase in domestic debt had led to a limited private sector due to the government’s increased reliance on domestic financing. Due to the Covid-19 pandemic, DRM efforts were handicapped led to Zambia becoming Africa’s first sovereign country to default in 2020 & 2021 (MoFNP 2021).
“The Common Framework launched by the Group of Twenty (G20) Summit in Nov. 2020 provides a mechanism for LICs to seek debt restructuring when unavoidable. Zambia first country to apply to restructure its sovereign external debt in 2021. Official Creditor Committee was formed for Zambia, co-chaired by China & France. The commitment cleared the way for the IMF Board to consider and approve the assistance package for Zambia. Provide a macroeconomic context to Zambia’s application for treatment under the Common Framework. Interrogate the interplay between the Common Framework and the IMF ECF to establish the extent to which these initiatives help to resolve Zambia’s debt problems. Examine factors that informed Zambia’s interactions with creditors under the Common Framework and evaluate their success, establishing the role of Zambia’s Official Creditor Committee. Zambia’s debt was assessed as “unsustainable” by the International Monetary Fund in 2019. The debt distress interfaced with the COVID-19 pandemic to trigger a recession in 2020 as the economy shrunk by an estimated 2.8%. Coupled with geo-political tensions and the Russia-Ukraine war, manifested in rising energy and food prices owing to disruptions in global supply chains”. Mr. Mumba said.
“Zambia’s public debt amounted to $31.7 billion at the end of 2021. Of this amount, external public debt accounted for over US$14 billion and a third of which was held by Chinese lenders (Ministry of Finance, 2022) Official bilateral creditors account for 15 percent of public debt, multilateral and plurilateral financial institutions (11.5 percent). Eurobond investors (11.7 percent) & non-bonded commercial lender (11.4 percent) (MOF Debt Statistical Bulletin, 2023). About US$ 6 billion is owed to Chinese commercial and state-owned lenders – largest creditor group by nationality & giving China significant leverage in Zambia’s ability to restructure its debt. Besides strides, Zambia’s government pursued complementary measures targeted at restoring fiscal fitness. August 2022, the IMF approved a US$1.3 billion – 3-year (36-Months) loan to Zambia as part of the Extended Credit Facility (ECF) – crucial step in restructuring debt. July 2022 – Government canceled US$ 2 billion of undisbursed loans on various projects. This is also elucidated in the Public Private Dialogue Forum (PPDF) & development delivery frameworks such as the Medium-Term Expenditure Framework (MTEF). Zambia’s debt was assessed as “unsustainable” by the IMF in 2019, with 90% of the national budget covering only public sector wage bills and debt servicing. This led to constrained fiscal space within the National Budget. Zambia approached the IMF for a formal program in 2016, but earlier efforts to secure a program proved futile over the 5 years prior to 2021.Factors included; lack of transparency on the debt situation & weak commitment by the government to implement reforms to curb the crisis dwindled the creditors’ confidence in Zambia’s resolve to retain debt to sustainable levels. Zambia’s government reached a Staff-Level Agreement with the IMF in December 2021 for a $1.34 billion Extended Credit Facility program over the next three years”. He added.
Zambia continued interacting with creditors, around 16th June 2022, the OCC for Zambia was formed in application of the CF for debt treatment beyond the DSSI endorsed by the G20 & Paris Club in Nov 2020. The committee consisted of 16 countries co-chaired by China and France and vice-chaired by South Africa. The creditor committee’s primary responsibility was to ensure that all private & official bilateral creditors of Zambia provided debt treatments under the CF on equal & more favorable terms to meet the comparability of treatment principle. The Debt Sustainability Analysis (DSA) provided a comprehensive understanding of Zambia’s debt position and vulnerabilities, which strengthened the case for debt restructuring. Multilateral lenders pledged to provide concessional financing to Zambia to help resolve its financing limitations. Zambia engaged in bilateral discussions with creditors, including China, to ensure fair and equitable treatment of creditors. The OCC provided financing assurances for the IMF Executive Board to consider Zambia’s request for a Fund-supported program. The Zambian government demonstrated commitment to resolving the debt crisis.
The approval of the IMF program was tied to the progress of the country’s debt restructuring process under the G20 Common Framework for Debt Treatment. The IMF and the World Bank conducted an independent Debt Sustainability Analysis to ensure the future sustainability of public debt through an IMF Supported Program. Zambia’s “home-grown” reforms over the next five years were documented in the country’s Eighth National Development Plan, which formed the basis for discussions with the IMF for a formal programs. The benefits of securing an IMF program were two-fold: the IMF endorsement continues to underpin negotiations under the Common Framework towards debt restructuring, and Zambia is receiving financial help towards budget implementation both directly and indirectly through concessional financing from other multilateral partners.
Zambia’s total Balance of Payments (BoP) financing needs were estimated at USD 11 Billion by the IMF. Of this, a successful debt restructuring process under the common framework is expected to unlock USD 8 Billion while the remainder is projected to be financed through the USD 1.3 Billion from the IMF Extended Credit Facility and USD 1.2 Billion which is expected to be sourced from the World Bank and other cooperating partners through various policy instruments (IMF Report for Zambia, 2022.
With regards to the weakness in the CFT, the current approach to sovereign debt restructuring is still plagued with many deficiencies and the process is time consuming and inefficient. The CF is limited to low-income countries were only open to 73 LICs. Middle-income countries in debt distress, such as Sri Lanka, are excluded from the Common Framework. The CF does not mandate the participation of private creditors and multilateral institutions such as the IMF and World Bank. CF relies heavily on a debtor country’s ability to coordinate with all creditors, including official and private stakeholders. Lacks clearly defined guidelines outlining the step-by-step process of debt restructuring. Reforming the debt restructuring architecture under the Common Framework is crucial to achieving timely and efficient debt restructuring.
In conclusion Mr. Mumba said that, the success of the IMF program depends on generating consensus among key stakeholders on the need for reforms. Zambia’s case shows progress can be made to render the Common Framework more workable to restructure LICs sovereign debt. However, more needs to be done to refine a comprehensive, efficient, and effective sovereign debt restructuring procedure. Long-term solutions involve strengthening the legal framework governing public debt and ensuring parliamentary oversight. Curing the information asymmetry challenge in public debt management is of paramount importance. Zambia’s case also exemplifies the call for a “New Debt Movement” and outlook that is needed to address issues of domestic resource mobilization and equitable investment in public services in Africa. This calls for increased civil society mobilization, organization, and re-awakening of advocacy on debt and influencing of policy-makers at country and regional levels on prudent debt management and equitable investment in public services.
Speaking on the panel discussion, valuable perspectives on issues around debt, debt management and fiscal management were discussed. It was stated that, Zambian government should remain transparent to the people on matters pertaining to debt restructuring. In much as the debt restructuring agreement is concerned, government should remain transparent and disclose every information to its citizens including terms and bonds, because debts are for Zambians and being paid on behalf of Zambian. Therefore, disclosure of every information is the key.
In summing up, it was discussed that, Zambian government should not be so comfortable because of debt restructuring, rather it should clearly understand that debt restructuring is not cancelation of debts. Good planning to settle the debts must be made, failing to plan is planning to fail and if government is not prepared adequately the debts may result in crisis and debt restructuring can enable the chances of Zambian government chances of borrowing again in future significantly low. Although it may seem like the creditors are doing Zambian government favor by restructuring debts, Zambian government are only prolonging the inevitable, the earlier they pay, the better.