Zambia on brink of debt default after moratorium refused

The grace period for the missed payment ended Friday on a $750 million eurobond due to expire in 2022.

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LUSAKA - Zambia was on the brink of defaulting on its foreign debts on Friday after the government said creditors had rejected a moratorium on its interest payments.

The coronavirus pandemic has badly hit the landlocked southern African country's already struggling economy, and its external debt has surged to nearly $12 billion this year.

Scrambling to avoid becoming the first African country to default during the pandemic, the government in September requested a six-month deferral on interest payments for three commercial eurobonds worth $3 billion.

But it missed a $40 million interest payment due on one bond on 14 October, leading to ratings agency S&P declaring the country in default.

The grace period for the missed payment ended Friday on a $750 million eurobond due to expire in 2022.

"While the government regrets that the bondholders did not approve the requests made by Zambia in good faith, we remain committed to finding a consensual and collaborative resolution to debt sustainability issues," Finance Minister Bwalya Ng'andu said in a statement.

Despite having the continent's second-largest copper deposits, Zambia has seen crippling debts become a key issue ahead of a presidential and parliamentary election scheduled for next August.

President Edgar Lungu, 63, is seeking a second five-year term as the impact of the pandemic hammers commodity prices which prop up a mining-heavy economy that is otherwise short on resources.

Zambi's $12 billion debt equates to around 80% of 2019 GDP, according to the African Development Bank (AfDB) - up from 35% in 2014.

Around half of that debt is held by private creditors, while a quarter is owed to various Chinese lenders.

Paying down debt has grown harder as the country's kwacha currency has fallen around 30% against the dollar since the start of the year, while rising inflation is also eating away at purchasing power.

The former British colony had hoped a moratorium would allow the rescheduling of payments on two other eurobonds - one for $1 billion expiring in 2024 and another worth $1.25 billion in 2027.

The country's economy is forecast to contract by 4% this year after a 1.7% dip last year and a 4% fall in 2018.