The International Monetary Fund (IMF) has approved a $1.3 billion loan to Zambia to help the debt-ridden country restore fiscal stability.
In 2020, battering the Covid-19 pandemic and choking under the weight of loans, Zambia became the first country in Africa to default on foreign debt.
According to official government data, the southern African country’s debt totalled $31.74 billion at the end of 2021, of which $17.27 billion was external debt, mostly from two Eurobonds and China.
Africa’s second-largest copper producer has struggled to jumpstart its economy as it grapples with a debt load reaching 120 percent of the GDP.
The country had reached a tentative agreement with IMF in December for a $1.3 billion facility, contingent on Zambia taking steps to reduce its debt to levels IMF deemed sustainable.
In late July, its creditors led by China and France, pledged to negotiate a restructuring of Zambia’s debts, a move IMF Managing Director Kristalina Georgieva said was “clearing the way” for funding.
Since coming into power a year ago, the new government of Hakainde Hichilema has made progress in restoring relations with donors as it tackles years of economic mismanagement.
The IMF says the $1.3 billion credit line will help Lusaka’s homegrown reform plan to “restore debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance”.
The IMF statement said Zambia’s economic growth “has been too low to reduce rates of poverty, inequality, and malnutrition that are amongst the highest in the world.
“Zambia is in debt distress and needs a deep and comprehensive debt treatment to place public debt on a sustainable path”.
President Hichilema welcomed the IMF decision Thursday and pledged that his government would avoid borrowing recklessly while implementing reforms to fix the economy.
The approval by the IMF’s Executive Board will unlock an immediate disbursement of about $185 million.