Zambia Opposition Head Sees Bondholder Haircuts

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Zambia’s external creditors will have to accept losses as they negotiate debt restructuring and it won’t be possible for the government to secure a bailout from the International Monetary Fund before general elections in August, the main opposition leader said.

Barclays Plc economists last month forecast creditors including Eurobond holders would exit the restructuring with a 20% haircut, and that’s a reasonable starting point for talks, Hakainde Hichilema, president of the United Party for National Development, said in an interview Thursday.

With fiscal sustainability at stake, the August presidential and Parliamentary polls will be key for the country that’s struggling to emerge from its deepest economic slump since 1994 and became Africa’s first pandemic-era default in November after missing an interest payment on a dollar bond. It’s skipped two payments since, while it seeks a funding program from the IMF.

The Finance Ministry is targeting a deal before the vote, which would form the basis of talks to restructure its commercial debt, but few see that happening. Lungu’s cabinet will dissolve along with Parliament on May 14, meaning time is extremely short for any agreement.

Zambia Opposition Head Sees Bondholder Haircuts

“A program before the elections is not feasible,” Hichilema said from Lusaka, Zambia’s capital. “Why would you throw good money after bad, for heaven’s sake? No-one, who is sane, can do that.”

The IMF made significant progress in a virtual mission with the Zambian authorities that ended this month, and talks will continue in coming weeks, the Washington-based lender said in a statement March 4. The government still needs to address debt and spending transparency, and stop building arrears for fuel and electricity, it said. That could entail price increases, which won’t be easy politically ahead of the elections.

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The UPND, which narrowly lost to President Edgar Lungu’s ruling Patriotic Front in the 2016 election, will move quickly to secure a deal with the IMF if it wins, Hichilema said. His party would have a better chance of restoring sustainability with creditors as the ruling party created what he called a mountain of government debt, which the fund saw reaching 120% of GDP at the end of last year.

Zambia’s public external debt stood at $12.74 billion at the end of 2020, the Finance Ministry said Thursday, with $3 billion owed to Eurobond holders. All creditors should face equal treatment, Hichilema said.

“We would go to the table with clean hands, with credibility,” he said. “There has to be a haircut. It has to be equitable. We don’t want one group of creditors holding debt stock to cross subsidize another.”

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