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, IMF MD Kristalina Georgieva said.
Speaking at the Financial Times ’ s Africa Summit onMonday, 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 SubSaharan 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. This is the first case when insolvency is knocking at the door. It is a country that does need to very seriously address the high level of debt.”
Zambia, which heightened concerns about its governance by abruptly removing its central bank governor in August just as it was battling a Covid-induced debt crisis, is trying to negotiate a suspension of debt payments with holders of $3bn of bonds.
The move sparked a selloff 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 as the economic costs mount. 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.
When Zambian President Edgar Lungu fired central bank governor Denny Kalyalya, the IMF issued a statement stressing the importance of central bank independence. SA’s finance minister, Tito Mboweni, criticised the Zambian leader at the time, and in turn was rebuked by President Cyril Ramaphosa.
“We ’ ve been encouraging Zambia to proactively work with its creditors,” the head of the Washington-based lender said.
“We haven’t yet come to a programme but we are committed to find a way forward in which the policy environment in Zambia and the types of engagement that Zambia has with creditors allow for a prudent solution of the debt situation.”
Speaking at the same conference, the head of the World Health Organisation, Tedros Adhanom Ghebreyesus, called for debt relief and restructuring “to enable poorer countries to ease the adjustment of their public finances so that health and other social spending can be sustained ”.