(Bloomberg) -- Zambia is considering a debt-for-nature swap to keep reducing its overseas obligations, according to Finance Minister Situmbeko Musokotwane.
Such swaps, which are designed to refinance government debt and put savings toward environmentally sustainable projects, is an option that the southern African nation is looking at after it restructured $3 billion in eurobonds to exit default, Musokotwane said. “We are thinking about it very closely” without yet finalizing a plan, he said in an interview on the sidelines of the World Bank and International Monetary Fund annual meetings in Washington.
Work is already underway on a framework needed for operations that use funds to protect the environment, Musokotwane said.
The exploration of new financing options comes as the IMF trimmed Zambia’s outlook for economic growth for the second time this year, to 1.2% from 2.3%, amid a record drought that the United Nations said was the worst regional dry spell in more than a century.
“If it reduces the debt burden further, why not?” Musokotwane said of the debt-for-nature swap. Meanwhile, Zambia’s “budget deficit must come down as the country just came out of a debt crisis,” he said, adding that key measures include cutting government expenditures and scaling down some infrastructure projects.
IMF Funds
The finance minister said Zambia is also in talks with the IMF for a new loan under its Resilience and Sustainability Trust, or RST, which is designed to help countries ensure sustainable growth.
“We are talking to the management so that we can expedite this as quickly as possible,” Musokotwane said, citing a climate change crisis and saying such concessional funding could be used to develop more dams for harvesting water.
Under the trust’s rules, Zambia’s request would be capped at around $1.3 billion. The funding is intended to address long-term challenges and offers 20-year maturities with a grace period on principal payments of 10 and a half years, according to the IMF website.
“Anything that helps to bring more concessional money, in other words cheap money, repayable over a longer period of time, is helpful,” Musokotwane said.
A key condition for RST funding is that a country’s core program with the IMF has a minimum duration remaining of at least 18 months. While Zambia’s extended credit facility expires at the end of next year, the minister said “there is a possibility that we ask for an extension of the program.” The IMF recently enlarged Zambia’s funding program to $1.7 billion from $1.3 billion.
--With assistance from Matthew Hill.
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