Zambia imposed a limit on foreign buying of local bonds ahead of a long-awaited debt-relief deal that President Hakainde Hichilema said is imminent.
(Bloomberg) — Zambia imposed a limit on foreign buying of local bonds ahead of a long-awaited debt-relief deal that President Hakainde Hichilema said is imminent.
The central bank on Wednesday issued new rules effective immediately that cap non-residents’ purchases at bond auctions at 5% of issuance, “as part of the overall debt sustainability efforts.” China, by far Zambia’s biggest bilateral creditor, had previously taken issue with a decision to exclude local currency securities held by foreigners from the nation’s restructuring plan.
Hichilema suggested a restructuring deal could be announced this week in Paris together with French President Emmanuel Macron and Chinese Premier Li Qiang. A Paris Club official as well as a senior US Treasury official also said this week a deal was within reach. While the government said in October it was seeking to renegotiate $12.8 billion worth of debt, it’s unclear if this has changed after negotiations.
“It was agreed that the three of us must stand side-to-side in the next two days,” Hichilema told reporters on Wednesday in Kigali, Rwanda’s capital. “You can interpret what that means.”
Still, limiting the participation of foreigners in local bond auctions could hit government finances that were already strained. Non-residents staying away from auctions for fear of the securities being included in a debt revamp already contributed to low subscription rates.
Test Case
Zambia has been a test case for the Group of 20’s Common Framework for debt restructuring that incorporates traditional lenders from the Paris Club with new ones like China, as well as bondholders. An agreement could clear the path for other nations seeking relief, Hichilema said.
“The framework we will agree — hopefully we should agree — in the next few days then can be rolled out to assist other countries,” he said. “We had to carry the can so that we can reduce the pain for others.”
Hichilema is due to travel to France to attend Macron’s two-day Summit for a New Global Financing Pact that starts Thursday. China and France co-chaired Zambia’s official creditor committee.
The amount of domestic debt that foreigners hold had fallen to about $2.1 billion from $3.3 billion previously, Felix Nkulukusa, the nation’s treasury secretary, said in April.
A restructuring deal would unlock an overdue payment of $188 million from the International Monetary Fund, and unwind the “python” of default that’s been constricting Zambia’s economy, Hichilema said.
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