Zambia has temporarily suspended interest payments to private creditors totaling $3 billion as it struggles to contain the economic effect of COVID-19, making it the first African country to default on its loan payment due to the coronavirus pandemic. The suspension will be in place for six months starting October 2020, the country’s Finance Ministry said in a statement.
Zambia issued three sovereign debt instruments before COVID-19; the first being a $750 million debt instrument with a 5.375% interest, the second being a $1 billion debt instrument with 8.5%, and the third being 1.25 billion with 8.9% interest.
The suspension also covers three upcoming interest payments on debts due on October 14 this year, January 30 and March 20 next year. The country says its inability to honor its debt commitment is because of challenging macroeconomic and fiscal situations “aggravated by the Covid-19 crisis that has severely affected the country’s public finances.”
The Finance Ministry added that a combination of declining revenues and increased unbudgeted costs caused by the Covid-19 has affected its available resources to make timely payments on its indebtedness leading to increasing debt-servicing difficulties.
Zambia, Africa’s second-largest producer of copper, has accumulated foreign debt of $10 billion over the past decade. The drastic fall in copper price has strained the country’s finances and stalled economic growth, which grew at an average of 6.8% between 2000 and 2014. The country’s public debt reached 80 percent of GDP in 2019 from 35 percent at the end of 2014.