Zambia’s official creditors, including China, have rebuffed a deal made with international bondholders as its “base case” scenario didn’t provide debt relief similar to what they offered in another deal.
 
According to official creditors, the agreement in principle, which was also rejected by the International Monetary Fund, didn’t comply with “Comparability of Treatment,” according to two sources with knowledge of the issue.
 
At the end of last month, Zambia said it had reached an agreement in principle with its international bondholders, following countless delays since it initially defaulted back in 2020, Reuters reports.
 
The announcement led to a steep rally in the country’s three outstanding bonds, which has been, in part, reversed since Zambia said earlier this month that the IMF has “expressed reservations” regarding the deal. This fuelled concerns the prolonged default could last longer still.
 
Bondholders and official creditors had suggested extending the maturity of Zambia’s debt, and it could be paid back more quickly if the economy performs better than forecast.

The bondholder deal proposed they would be paid over $700 million before 2026 in the base case, whilst official creditors had offered a three-year grace period, the Reuters report adds.

One of the sources said bondholders would need to offer greater debt relief in the base case scenario in order for official creditors and the IMF to accept the deal.
 
“There were marginal deviations in positions and these deviations are being discussed. As it stands, the IMF may be in a position to support the adjusted terms as compatible with Zambia's programme parameters,” the second source stated.
Zambia’s finance ministry said this week that there were “continuing discussions” with bondholders, whilst an IMF spokesperson said that “modifications are needed to bring this initial proposal more fully into line with the requirements of the IMF program.” Whereas China’s foreign ministry said all creditors should provide debt relief “in accordance with the principle of 'common action and fair burden'.”