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Zambia’s IMF Deal Gives Lessons to Others Who Could Default

Holders of defaulted Sri Lankan bonds are keeping one eye on the South Asian nation’s biggest creditors and the other on an African debt deal for clues as to how the restructuring might play out. Zambia became the continent’s first pandemic-era sovereign defaulter, needs relief on payments worth $8.4bn through 2025, estimated at about 90% of its scheduled external debt servicing over the period. China reluctantly co-chaired the committee of official creditors for Zambia, and nine months after a preliminary deal was reached, the IMF approved a $1.3bn loan for the country. Sri Lanka’s 2030-dollar bonds halved in value in the months after March 2020 as the pandemic set in. They hit a record low of 24c on the dollar this July as fuel shortages ground the economy to a halt, and now trade about 30c on the dollar. The nation’s bonds have lost 40% this year, according to a Bloomberg index. In order for the IMF to release the financial support, the Sri Lankan government must also win concessions from its private investors. Officials are working with financial and legal advisers on a debt restructuring strategy and intend to make a presentation to the creditors in the coming weeks.