By Nicholas Bariyo


The International Monetary Fund board has approved the long awaited $1.3 billion rescue loan for Zambia, paving the way for the copper producing nation to restructure its soaring external debt.

The 38-month extended credit facility "aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth," based on Zambia's home-grown economic reform plan, IMF said in a statement Thursday.

"Restoring fiscal sustainability will require a sustained fiscal adjustment," IMF said. "The authorities' adjustment plans appropriately focus on eliminating regressive fuel subsidies, enhancing the efficiency of the agricultural subsidy program, and reducing inefficient public investment."

The credit facility--which will enable an immediate disbursement of $185 million--is a boost for Zambia, which became Africa's first pandemic-era sovereign defaulter in 2020 after years of low copper prices.

Over the past two years, Zambia has been pushing for an endorsement from the IMF amid faltering efforts to restructure its $17 billion in foreign-currency debt. Zambia's debt had ballooned to 123% of gross national product by the end of 2021 and the copper and cobalt producing nation urgently needs to restructure it to sustainable levels, according to the World Bank. Chinese lenders account for the bulk of Zambia's external debt.

Last month, China and other government creditors to Zambia said they are ready to negotiate debt relief. According to Zambia's finance minister, the IMF bailout will help to get Zambia's economy back on a sustainable growth trajectory.

But some economists believe that Zambia's emergency from default is far from over since the country still needs to negotiate individual restructuring deals with lenders, including Eurobond holders.

"We remain cautious of disappointment surrounding the debt negotiations with commercial creditors and Eurobond holders, both in terms of the magnitude of debt relief and the timeline towards a conclusion to negotiations" said Irmgard Erasmus, an analyst with South Africa-based Oxford Economics Africa.


Write to Nicholas Bariyo at nicholas.bariyo@wsj.com


(END) Dow Jones Newswires

09-01-22 0305ET