By Chris Mfula and Karin Strohecker
LUSAKA (Reuters) -The International Monetary Fund and Zambia on Friday reached a staff level agreement on a $1.4 billion, three-year extended credit facility, which could bring the heavily indebted country one step closer to a comprehensive debt overhaul.
Zambia, one of the world’s largest copper producers, became Africa’s first pandemic-era sovereign defaulter last November after years of chronic government overborrowing from international institutions drove its debt burden above 120% of 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 an emailed 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.”
The government of President Hakainde Hichilema, who was elected in August, had started 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.
In late October, Zambia promised to slash its budget deficit and curb borrowing in a bid to secure IMF support, as well as reduce spending on politically-sensitive subsidies – such as on power, fuel and farming – likely to have been one of the fund’s key demands.
Zambia’s external debt includes 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.
Investors welcome the news, which lifted the country’s hard currency bonds, which jumped as much as 1.3 cents to trade between 75-78 cents in the dollar, Tradeweb data showed.
“The first concrete step towards the finalisation of an IMF financial support package – which has been many years in the making – is indeed a very good sign that authorities provided the much-needed (and previously lacking) financing assurances,” said Irmgard Erasmus, senior financial economist at Oxford Economics.
Together with Chad and Ethiopia, Zambia is one of the three countries that have requested a restructuring of its external debt under a common framework agreed last year by China and other Group of 20 members, and the Paris Club of major creditor countries.
Getting approval from the IMF for a programme is a key step for countries in the debt restructuring process. But 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.
(Reporting by Chris Mfula in Lusaka and Karin Strohecker in London; additional reporting by Tommy Wilkes, editing by Marc Jones and Aurora Ellis)
