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G20 creditor committee rejects revised Zambia agreement, potentially deterring other countries from applying and putting the relief programme at risk
The threats to Zambia's painstakingly agreed debt restructuring deal could be the last nail in the coffin on the Group of 20's Common Framework debt relief programme.
Last week's decision by the Official Creditors Committee to reject a revised deal on the grounds that it breached the 'comparability of treatment principle' – where no creditor should receive more favourable treatment than the others – and did not provide enough debt relief has sent the government in Lusaka and bondholders back to the drawing board.
'The OCC is inexplicably blocking the path to restoring Zambia's debt sustainability by dictating terms it has no right to define,' said bondholders in a statement, adding that 'the OCC's intransigence risks inflicting severe damage to Zambia's economy and poses an existential threat to the entire viability of the Common Framework, impacting the emerging markets asset class.'
The bondholders were set to take a bigger upfront haircut than China – Zambia's largest bilateral creditor – which has agreed to restructure $4.1 billion.
Finance Minister Situmbeko Musokotwane has complained that the delays have hit economic growth, weighed on local financial markets and increased the cost of living.
Praising President Hakainde Hichilema's government for its role in brokering the agreement, the International Monetary Fund had previously said it would use the deal as a template for other nations such as Ethiopia and Ghana that are also seeking debt restructuring under the G20's Common Framework.
However, no country has brokered a debt relief deal based on the G20 programme since its creation in 2020, and Zambia's travails are likely to further discourage other debt-distressed African countries from following Lusaka's path.
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