Followers of the Zambian economy’s debt engagements will have read or heard reference to the G20 Common framework. The arrangement serves as the guiding principle to the Group of 20, who are the 20 largest economies in the world, in dealing with debt crises in poorer nations. A relatively new initiative, launched in the latter stages of 2020, Zambia is one of the first countries to apply for debt treatment under its auspices, the only other two being Chad and Ethiopia. Little, however, is known of the specificities of the framework. This, together with teething issues in its implementation has led to several critiques of its efficacy in as far as expeditiously addressing debt distress.

What is this framework?
The framework was designed with a view to coordinate negotiations between debt distressed debtors and their creditors. It allows for harmonisation of debt treatments by official creditors that encompass multilateral, bilateral and private lenders. Prior, negotiations tended to be disjointed, with those of the Paris club taking place separately from that of Official Bilateral Creditors and private markets. The Framework works in close coordination with the Bretton Woods institutions, WBG & IMF, taking guidance from the latter’s respective country programme and Debt Sustainability Analysis of the World Bank. In this vein, the initiative stresses reforms mandated by an IMF country programme in order to inculcate prudent public financial management and avert similar future crises. The framework is summarised in an MoU between creditors and the debtor country, that stipulates parameters of the debt treatment. These parameters include:

1. The reduction in debt service over the life of the IMF supported programme.
2. The reduction in the Net Present Value of debt.
3. The extension in repayment periods, if any.

Inception of the Common Framework
In response to the ravages of the COVID pandemic, and with the prompting of the IMF and WBG, G20 countries implemented the Debt Service Suspension Initiative (DSSI). It facilitated the halting of debt payments by eligible countries enabling them to focus their resources on managing the pandemic. According to the World Bank, under it, $12.9 billion in debt repayments were halted. The initiative expired in December 2021. The DSSI was superseded by the Common framework. Multilateral institutions and bilateral creditors recognised the increased vulnerability of low-income countries beyond the Debt suspension. The Common framework was meant to provide a more lasting solution to the imminent debt crisis, particularly in Sub Saharan Africa.

Zambia’s Experience
In June 2022, an official creditors committee was instituted for Zambia co-chaired by France and China. At the second meeting of this committee in August 2022, the Zambian economic reform programme was endorsed and members made a commitment to negotiate terms of a restructuring in view of internal laws of creditor countries and institutions. Other bilateral and private creditors were also implored to provide debt relief on at least comparable terms.

This in principle, thus should have set the scene for expeditious debt restructuring. Time has revealed that this, however has not been the case. The Ministry of Finance targeted to reach restructuring agreements by end of 2022 or early 2023. The first of these time frames has elapsed with little certainty if conclusions will be made in the second. The restructuring process has remained painfully slow with the Ministry of Finance stating in December that it is yet to discuss terms of a restructuring. China for instance has been seeking clarifications on figures that form the basis of IMF assumptions. The protracted process has not been without effect on the local economy. The Kwacha has weakened significantly, jeopardising many of the economic gains of the new presidency, particularly inflation.

Delays have, hitherto, been the hallmark of negotiations under the G20 Common Framework. Three countries have so far applied for debt treatment under it: Zambia, Chad and Ethiopia. Of these, Chad is the only to have come to an agreement with its creditors, which was reached late last year. This notwithstanding, criticisms have been drawn of that county’s agreement. World Bank Group president Mr David Malpass, for instance, lamented the lack of a Net Present Value reduction in debt. The blame has been squared at China, in that respect, not only in the case of Chad but Zambia as well. Chinese officials have tended to offer an extension of maturities as opposed to debt haircuts, in addition to its purported foot-dragging in debt negotiations.

The Ministry of Finance has a mammoth task. Reaching an agreement with the IMF was commendable, however, securing actual debt restructuring is more important and will prove to be more challenging. 2023 thus may be a challenging year for the Zambian economy as the entire economic transformation agenda of the UPND government is predicated on debt restructuring. Nonetheless, the author remains hopeful that eventually debt treatments will be agreed which will bode well for financial markets, our Extended Credit Facility and the economy.

The Author is an Economist and member of the Economics Association of Zambia