Zambia and its government creditors, including China, have reached a deal to restructure $6.3 billion in loans, the French government announced Thursday on the sidelines of a global finance summit in Paris.
The agreement covers loans from countries including France, the U.K., South Africa, Israel and India as well as China — Zambia's biggest creditor at $4.1 billion of the total. The deal, announced by officials who spoke anonymously in accordance with the French government's customary practices, may provide a roadmap for how China will handle restructuring deals with other nations in debt distress.
The International Monetary Fund approved the deal, meaning it's going to allow Zambia to receive more financing from the institution, the French government said. A representative from the IMF did not immediately respond to a request for comment.
The Zambia deal came at a summit with more than 50 world leaders, finance officials and activists to discuss ways of reforming a global financial system to better help developing nations struggling with debt, climate change and poverty.
Zambia — the continent's biggest copper producer— became Africa's first coronavirus-era sovereign nation to default when it failed to make a $42.5 million bond payment in November 2020. The debt has prevented the democratic nation from developing economically and taking on new projects. Experts have said such prolonged debt crises can send nations deeper into poverty and joblessness and exclude them from the credit they need to rebuild.
U.S. Treasury Secretary Janet Yellen, who is attending the summit, welcomed news of the Zambia deal. She visited Lusaka in January to meet with Zambian President Hakainde Hichilema and bring attention to the ramifications of its debt crisis.
"I saw firsthand how the weight of default and a stalled debt restructuring process can bring suffering to ordinary families and hold back economic growth," Yellen said. She urged both official and private-sector creditors to quickly finalize debt restructuring to "encourage the private investment that is needed to jump-start the economy."
Full details of the deal weren't announced. The French officials said Zambia's debt would be reorganized over 20 years, with a three-year grace period. It also includes a clause aimed at ensuring that Zambia gets similar treatment from private creditors, who hold an additional $6.8 billion in loans to Zambia, but it wasn't clear that those private creditors could be required to do so.
"Private creditors know they're going to need to restructure [the debt], they have been warned they'll need to make a similar effort," a French official said.
A memorandum of understanding is expected to formalize the deal in the coming weeks.
The deal is the second to be agreed under a mechanism — called the Group of 20 Common Framework — created at the end of 2020 to associate the Paris Club of government creditors and other major economies from the Group of 20, including China, in debt negotiations.
The first was struck last year with Chad.
Yellen has called for debt overhang in other countries such as Sri Lanka to be addressed as well.
