Zambia Becomes the First African Country to Default on Its Debt Since the Outbreak of COVID-19

The day that many African policymakers had long feared since the outbreak of COVID-19 earlier this year is now here. Zambia yesterday said it will be unable at this time to repay the interest on three Eurobonds, totally around $3 billion, and will effectively have to default on that portion of its debt.

The government, according to a statement released by the finance ministry, is asking investors to give the country some “breathing space” while it restructures its debts.

“Zambia is currently faced with unprecedented liquidity constraints that have been exacerbated by the Covid-19 pandemic, resulting in a substantial decline in revenues,” said the statement. “A combination of declining revenues and increased unbudgeted costs caused by the Covid-19 pandemic have resulted in a material impact on the government’s available resources to make timely payments on its indebtedness, leading to increasing debt-servicing difficulties.”

Zambian Finance Minister Bwalya Ng’andu is expected to present next year’s budget on Friday which may provide some visibility as to how the government plans to restructure its current debt portfolio.

Zambia Was in Trouble Long Before COVID-19 Arrived

  • DEBT: President Edgar Lungu and his ruling Patriotic Front party went on a borrowing binge of historic proportions, increasing the country’s debt load from $500 million in 2005 to $11.7 billion today. (DAILY MAVERICK)
  • GOVERNANCE:  The lack of effective governance and oversight by the Lungu administration led to ministries taking out loans that the finance ministry was unaware of and profligate spending including a Gulfstream and other private jets. (THE ECONOMIST)
  • COPPER: Years ago, when copper prices were high and the government was flush with cash from all those new loans, the Lungu administration did not invest that money to diversify the economy. Later, to make up for a revenue shortfall, the government then imposed heavy taxes on the mining industry which led to a sharp drop in output that also compounded by a fall in global copper prices. (S&P GLOBAL)

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