IMF Board Approval.

The IMF board yesterday approved the 3-year US$1.3bn Extended Credit Facility (ECF) for Zambia. This follows the staff-level agreement that was reached in December 2021 and the subsequent provision of financing assurances by the Official Creditor Committee (OCC) last month. We expect this announcement to provide further impetus for creditors to agree on comparable terms that will support Zambia’s broader goal of fiscal sustainability. IMF Director Kristalina Georgieva noted Zambia’s strong commitment to economic reform, targets of increasing social spending and strengthening economic governance and transparency.?

Next Steps.

The next step will be for the OCC and the fiscal authorities to agree on the modalities of the debt restructure and document the agreement in a Memorandum of Understanding (MoU). The discussion with the OCC will have to be complemented by discussions with the private creditors to ensure fair treatment for all creditors. The MoU will outline, among other things, the terms of the restructure and other details pertinent to the agreement.

Market Reaction.

Even though markets had priced in this development, we still see scope for a reaction in both currency and fixed income yields. However, the reaction may not be as aggressive as the one after the elections due to the tightened global market financial conditions and risk-off sentiment.?