Lawmakers in Africa’s first pandemic-era defaulter are considering a new law that sets strict limits on public borrowing and enhances transparency to avoid future debt troubles.

Under the Public Debt Management Bill, Zambian lawmakers will need to approve an annual borrowing plan prepared by a new debt management office. Total outstanding government borrowing won’t be allowed to exceed 65% of the previous year’s gross domestic product, and the cost of servicing external debt will be limited to 20% of the average annual recurrent revenues of the prior three years, according to the proposed legislation. Both limits will only apply five years after the new law becomes effective. Debt was 123% of GDP in 2021, according to the International Monetary Fund.

Zambia is struggling to restructure external public liabilities that topped $17 billion last year. Still, debt management transparency was key to a preliminary deal the government reached with the International Monetary Fund for a $1.4 billion bailout in December. Also, the new law may provide creditors with some reassurance that the nation won’t over-extend itself again, as they consider Zambia’s request to rework its debt.

Zambia’s official creditors committee, co-chaired by China and France, held its first meeting June 16 and a date is yet to be set for the next one, Estella Nyimba, a senior economist at the Ministry of Finance and National Planning, told reporters Thursday in Lusaka, the capital. The government needs financing assurances from creditors to win IMF board approval for its funded economic program.

Other Key Bill Proposals:

• The debt management office will conduct a yearly debt sustainability analysis and keep an updated database of outstanding public borrowings and guarantees.
• The finance minister will have sole authority to raise public loans.
• Public institutions require written authority from the treasury secretary to raise a loan or issue a guarantee. Contravention may result in up to five years in prison.
• The total contingent liability for public guarantees can’t exceed 10% of GDP.