Twenty one months after formally requesting for financial support from the Washington based lender, Africa’s second largest copper producer has been granted a 38 month extended credit facility of $1.3 billion. This was after the International Monetary Fund board met on August 31 to assess the Southern Africans country’s case following the strides that the new dawn government has put in place. Zambia’s fiscal fragilities were exacerbated by a COVID 19 pandemic that weighed its cash flow capacity making it the first nation to default on its dollar bonds in 2020 as its credit risk profile deteriorated causing the international rating agencies to lower its long term issuer rating to default status. This sent its credit default spreads wider with rates north of 56% in dollar terms.
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In a tweet, IMF Managing Director Kristalina Georgeiva thanked President Hakainde Hichilema and his team on the $1.3billion attainment. “We are proud to support Zambia’s homegrown reforms and actions to help build a better future for all Zambians,” Georgeiva said.
The bailout package comes exactly 1 year after Hichilema ascended to power. Hichilema’s regime has been dubbed to be extraordinary by defying odds such as being the first head of state to court multilateral chiefs namely David Malpas of the World Bank and Kristalina Georgeiva of the IMF in Washington as the Zambian authorities sought to demonstrate strong political will towards restoration of fiscal fitness. Other actions include meeting directly with bond holders in London to assure them of Zambia’s commitment towards meeting its obligations.
It has been a tumultuous journey for Zambia with the last few months characterized by breakthroughs for the copper producer after China nodded to join the red metal producers creditor que concerning debt restructure under the common framework. This development was landmark into bring key creditors to provide assurances towards restructuring Zambia’s circa $30 billion debt position. With the IMF extending financing to Zambia, private creditors such as Eurobond holders will be in a better position to nod debt restructure of the $3billion exposure in dollar bonds running with $750million maturing September 2022. It remains vague as to when a restructure with dollar bond holders will be reached seeing that this portion of debt is graded and key to a credit rating improvement by the rating agencies.
“One thing that is evident is that IMF programs of our times have a human face and we have seen the Washington based lender more sympathetic to allow issues such a subsidies to phase slowly while pandemic times have also in disguise softened the lenders stance towards assisting humanity in a debt laden world,” Nikiwa Capital Chief Strategist Munyumba Mutwale said in a note. What most people dubbed conditionalities is actually MinFins devising economic reforms to optimse use of scarce resources. Suffice to say governments in this age are crafting their own home grown interventions backed by IMF programs as they work towards fiscal fitness.
Zambian markets to some extent have priced in this development and the copper producer is expected to see increased flows and other positive externalities that should spur growth firmer. Following Hichilema’s speech at the European Union parley, Zambia is back in the champions league. Foreign exchange markets are set to take a positive cue from the development. The facility entails and immediate $185million disbursement. Other jurisdictions that have recently been bailed out by the IMF include Chile and Kenya.
The Kwacha Arbitrageur
