GOVERNMENT has asked for a suspension of debt interest payments on all three of Zambia’s Eurobonds for a period of six months, effective October 14, 2020, in response to the country’s challenging and stressed fiscal situation.

According to a statement availed by Secretary to the Treasury Fredson Yamba, Tuesday, the Ministry of Finance placed a request to bond holders of the US $3 billion worth of Eurobonds to freeze interest payments for a six-month period in view of government’s tight fiscal constraints and challenging macroeconomic environment.

Zambia issued three Eurobonds worth US $750 million, US $1 billion and US $1.25 billion in 2012, 2014 and 2015, with the US $750 million and US $1 billion bonds maturing in 2022 and 2024, respectively.

“The Ministry of Finance has announced a Consent Solicitation to holders of its (i) US $750 million, 5.375 per cent; notes due 2022; (ii) US $1,000,000,000, 8.500 per cent; notes due 2024 and (iii) US $1,250,000,000, 8.970 per cent; notes due 2027 to request the suspension of debt service payments for a period of six months from October 14, 2020, effectively covering the upcoming three coupon payments due on on 14 October, 2020, 30 January, 2021, and 20 March, 2021 on the respective notes. The Republic of Zambia is confronted with a very challenging macroeconomic and fiscal situation aggravated by the COVID-19 crisis that has severely affected the country’s public finances,” Yamba said in 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. This is the reason why the Republic of Zambia has taken the decision to apply for the G20 Debt Service Suspension initiative in August, 2020, and is requesting similar debt service suspension from its commercial creditors, including noteholders.”

Yamba, however, added that government continued to actively engage with the International Monetary Fund (IMF) to secure badly-needed financial relief to improve Zambia’s debt sustainability position and help shore up its balance of payments.

“…Government, meanwhile, continues to actively engage with the IMF to secure financial assistance within a programme of reforms that would help in stabilising the macroeconomic outlook of the country and restoring its fiscal balance. In this context, government is committed to finding a consensual and collaborative resolution to the debt sustainability issues it is currently facing. The Ministry invites all holders of direct and guaranteed external commercial obligations of the Republic, including the Notes, to an investor presentation that will take place on 29 September, 2020, at 12.30PM (London time),” said Yamba.

Zambia required a second successive supplementary budget worth an unprecedented K15.01 billion, passed in July, with K5.7 billion earmarked towards debt servicing, representing around 38 per cent of the total budget, while K5.5 billion was allocated towards expenditure drawn from the COVID-19 bond, leaving only K3.9 billion remaining to fund other government functions.

This came on the back of a massive budget deficit of K17.2 billion from K14.8 billion announced in April largely attributed to a reduction in economic activity, according to Ministry of Finance data, as the country’s debt levels remain elevated and continue to squeeze government revenues.