Zambia bond debacle calls for debt restructure rethink

The collapse of Zambia’s $3 billion bond rework deal this week is reverberating well beyond the country’s borders, raising doubts about the very framework designed to get bankrupt nations back on track quickly.

Zambia’s government said on Monday an International Monetary Fund-approved deal with bondholders – agreed in principle less than a month ago – could not proceed due to objections from bilateral creditors, who say the terms of the deal are not comparable to the relief offered by a group of countries including France, China and India.

The setback sent the bonds of countries in the midst of debt reworks such as Ghana and Sri Lanka tumbling. It also raised fresh questions about the commitment of Western nations and multilateral lenders to help poor countries claw their way out of unmanageable debt.

“To me there is a real problem, and the real problem goes beyond Zambia,” said Brad Setser, a Council on Foreign Relations fellow and former U.S. government official, suggesting the way debt sustainability and market accessibility for low income countries was assessed might need to be adjusted.

Source: CNBC