In 2020 at the peak of COVID19, Zambia defaulted on its sovereign debt totalling circa $12billion ($6.3billion of public debt to other governments and $6.8billion of private sector debt). As at June 2023, the media reports that of the $12billion, $6.3billion of public debt to other governments (which includes $1.3billion in arrears) has been restructured to allow Zambia to pay off this amount including interest payments accrued, within the next 20years (with a grace period of 3years to re-organise the economy).
What is debt restructuring?
In layman terms, this means reorganising debt by agreeing on terms and conditions of payments in a way that still allows the economy to grow. This reorganisation takes the form of increasing the payment duration, reducing interest rate payments accrued or perhaps partial/total write off where possible to provide some relief off the country.
In the case of Zambia, like many other countries, it faced challenges with managing its debt resulting in implications directly on to the economy. The general downside of country debt means key sectors such as health, education and infrastructure development are slowed because the governments priority becomes paying off debt. However once terms and conditions of paying off debt are agreed, the government can then re-direct and allocate funds towards key sectors (and allow for foreign investments to generate economic activity to hedge the risk of bankruptcy).
What are the implications of the debt restructure on Zambia?
If successful, Zambia earns credibility on the international landscape and this opens doors for investor confidence i.e., further foreign investment which trickles down to a rich performing currency and increased economic activity through creating jobs, infrastructure growth and general development for the country. Zambia then truly becomes open for business, on its trajectory to become a developed nation.
If unsuccessful, Zambia loses credibility on the international landscape hence falling prey to country downgrades, making it difficult for international investments and reducing chances of further lending from other countries and international bodies. Zambia then prolongs its debt, which spills into further years of economic turmoil and tougher times ahead for its people as a developing nation.
What next?
Majority note that this is a milestone worth celebrating while others note that this is a recipe for disaster for the generations ahead if the mismanaged. So far, public sector debt has been restructured, we anticipate that private sector debt will equally follow the same path. We remain indebted with the hope that strict adherence to terms and conditions agreed, in addition tosolid plans of generating additional revenue by the government will ensure Zambia stays afloat. Needless to say, either way, the work has certainly just begun for the Zambia.