Zambia debt default prompts IMF warning

IMF MD Kristalina Georgieva believes Zambia’s default – the first by an African country since the Covid-19 outbreak – is a warning that countries in debt distress should seek help from creditors sooner rather than later, says a Business Day report. Georgieva said the case of the Southern African country was the first one where ‘insolvency is knocking at the door’. The IMF has provided $16bn (R264bn) to countries in sub-Saharan Africa to fund health interventions to deal with the pandemic – about 10 times the amount it usually does in a year. She said the fund was committed to finding a solution for Zambia. ‘Of course we are concerned. It is a country that does need to very seriously address the high level of debt.’ Zambia is trying to negotiate a suspension of debt payments with holders of $3bn of bonds. The move sparked a sell-off that pushed the Kwacha and yields on its Eurobonds to record highs. Some private lenders have opposed any moratorium on repayments, partly on concern that Zambia has not been transparent about debt owed to China and whether they will be treated equally.

The default has sparked concern that other countries that borrowed heavily before the Covid-19 crisis will follow suit, notes Business Day. Countries that face difficulty need to act quickly, Georgieva said. ‘This is the message for all countries in debt distress – the sooner the better. If debt is not stable, please move towards restructuring,’ she said. Zambia is not one of the countries that received Covid-19 relief from the IMF, partly reflecting concern that its debt is on an unsustainable trajectory. SA – which has seen its budget deficit balloon as a result of a shrinking economy, collapsing tax revenue and extra spending as a result of the pandemic and national lockdown – was granted a $4.3bn loan in July.