Zambia faces Africa's first corona-related debt default

The Zambian government has said that it is seeking suspension of debt service payments for a period of six months from private creditors holding about $3 billion in international bonds. This could make Zambia the first African country to default on its debt due to the coronavirus pandemic.

In a statement released last week, the government blamed the current situation on a combination of declining revenues and increased unbudgeted costs caused by the COVID-19 pandemic. It further asked its bondholders to meet on Oct 20 to seek permission to defer interest payments until April next year as it plans to restructure its debt.

In a pre-recorded message delivered at the 75th United Nations General Assembly on Friday, Edgar Lungu, Zambia's president said that the COVID-19 pandemic has not only decimated economies and exacerbated poverty but has also shown the world how interdependent nations have become.

"The post-coronavirus landscape will require urgent action to guarantee recovery and to lay a solid foundation for a better world," Lungu said.

"Accordingly, Zambia supports the calls for major interventions, such as debt relief and cancellation for developing member states and enhanced collaboration in research for vaccines and a cure for COVID-19. Mobilization of resources from the local and international communities is another major form of intervention."

The Zambian government said pandemic costs have resulted in a material impact on the government's available resources to make timely payments on its indebtedness, leading to increasing debt service difficulties.

The government also revealed that it has scheduled a call with investors on Tuesday to discuss its proposal.  Two-thirds of bondholders have to consent to the deferral of interest payments for the plan to go through. Zambia had already secured the temporary suspension of payments to some official creditors until the end of the year, under a special plan for pandemic relief.

Under the proposed interest-holiday request, Zambia's says it will pay bondholders $0.50 per $1,000 in bond principal they hold if the coupon-payment suspensions are approved.

While delivering the 2021 budget speech in Parliament on Friday, Bwalya Ng'andu, Zambia's minister of finance, said the 2020 national budget has underperformed largely due to the impact of the COVID-19 pandemic.

Noting that the interruption of exports caused by the pandemic has greatly affected the economy, Ng'andu said that while copper production increased to 523,000 metric tons from 449,000, copper export earnings were lower at $2.3 billion compared with $2.7 billion.

The minister also stated that exports in the first half of 2020 declined to $762.4 million from $929.5 million compared with 2019 in the same period.