China Eximbank suspends principal payments under loan agreements with Government of Zambia until 2026, reschedules principal and interest payments between 2026 and 2043, and reduces interest payments between 2023 and 2043

In August 2020, the Government of Zambia requested that its external debt service obligations be temporarily suspended under the G20-led Debt Service Suspension Initiative (DSSI) due to the COVID-19 pandemic.

Shortly thereafter, in November 2020, the Government of Zambia went into sovereign default after missing a payment on one of its international bonds.

China Eximbank and China’s Ministry of Commerce (MOFCOM) granted debt service suspensions – via DSSI – from June 2020 to December 2021.

Then, in June 2022, a group of governments (including the Chinese government) that had extended credit to the Government of Zambia over the years formed an Official Creditor Committee (OCC) to restructure the Government of Zambia’s outstanding repayment obligations.

Debt Summary Reports published by Zambia’s Ministry of Finance provide evidence that the Government of Zambia did not make interest or principal payments on some of its PPG loans from Chinese state-owned creditors between 2022 and June 2023.

Then, on June 22, 2023, the Government of Zambia announced that the OCC had agreed to restructure $6.3 billion worth of outstanding debt (including $4.137 billion worth of outstanding debt to China Eximbank).

The Government of Zambia and the OCC reportedly agreed that principal payments would be suspending between July 2023 and June 2026.

However, during this 3-year grace period, the Government of Zambia reportedly agreed to make all interest payments that were due. All remaining debt was reportedly to be repaid between 2026 and 2046.

Other features of the deal that was announced on June 22, 2023 included: (a) interest rates being set at 1% during a 14-year period (2023-2036) and not exceed 2.5% thereafter under the ‘baseline scenario’; and (b) an adjustment mechanism that provides for an accelerated repayment schedule (with final maturities being reduced by 5-years and higher interest rates) if the Government of Zambia’s capacity to service external debt improves in the future (i.e. not the ‘baseline scenario’).

Then, in October 2023, China Eximbank and the Government of Zambia signed a debt restructuring agreement (MOU), which officially (1) extended a principal payment moratorium until 2026, (2) rescheduled all outstanding debt in eighteen, annual principal and interest payments between 2026 and 2043, (3) reduced interest rates to 1% over a 14-year period (2023-2036) in the baseline scenario’, and (4) introduced an adjustment mechanism that provides for an accelerated repayment schedule (with final maturities being reduced by 5-years and interest rates set no higher than 2.5%) if the Government of Zambia’s capacity to service external debt improves in the future (i.e. not the ‘baseline scenario’).

The October 2023 MOU specifies that the total amount of principal outstanding (referenced in Article II-2) should be repaid in 18 successive, annual installments, with corresponding interest, according to following schedule (as a percentage of the total amount of principal outstanding): 0.5% on October 21, 2026, 0.5% on July 21, 2027, 0.5% on July 21, 2028, 0.5% on July 21, 2029, 0.5% on July 21, 2030, 0.5% on July 21, 2031, 0.5% on July 21, 2032, 0.5% on July 21, 2033, 0.5% on July 21, 2034, 0.5% on July 21, 2035, 5.0% on July 21, 2036, 12.0% on July 21, 2037, 12.0% on July 21, 2038, 12.0% on July 21, 2039, 13.5% on July 21, 2040, 13.5% on July 21, 2041, 13.5% on July 21, 2042, and 13.5% on July 21, 2043.