Zambia and the International Monetary Fund agreed at the staff level on Friday to a three-year, $1.4 billion loan, which could help restructure the heavily indebted country’s debt.
Copper-exporting Zambia became Africa’s first sovereign defaulter last November after chronic overborrowing from international institutions drove its debt burden to over 120% of its annual economic output.
“This agreement is based on the authorities’ plans to undertake bold and ambitious economic reforms,” Allison Holland, IMF mission chief for Zambia said in a statement. “The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances. Further details on the agreement will be released on Monday.”
President Hakainde Hichilema, who was elected in August, began talks with the IMF in early November.
“The IMF programme will provide much needed fiscal space to Zambia and anchor our domestic economic programme,” Zambia Finance Minister Situmbeko Musokotwane said in a statement.
Zambia offered to slash its budget deficit and reduce borrowing in late October in order to gain IMF support, as well as to cut spending on politically-sensitive subsidies – such as on power, fuel, and agriculture – likely to be one of the fund’s key demands.
Zambia owes around $3 billion in international bonds, $2.1 billion to multilateral lending agencies such as the IMF, and another $3 billion to China and Chinese entities.
The news has lifted the country’s hard currency bonds, which rose as much as 1.3 cents to trade between 75-78 cents in the dollar, according to Tradeweb data.
Zambia, along with Chad and Ethiopia, requested a restructuring of its external debt under a common framework agreed by China and other Group of 20 members, along with the Paris Club.
The IMF’s approval of a debt restructuring program is a key step for countries. However, progress on the framework has been slow.
Zambia’s finance ministry said it would provide more details on the IMF agreement in a joint briefing with the fund on Monday.