By Bloomberg News

• The IMF announced the funding after 1 a.m. Zambia time. By 3:50 p.m. in Lusaka, the capital, the copper-producing nation’s currency had gained 3.1% against the dollar

Zambia won International Monetary Fund board approval for a $1.3 billion support package, an important step toward the nation restructuring its debt and a boost for the global effort to help indebted developing nations.

The 38-month extended credit facility is based on Zambia’s “homegrown economic reform plan that aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth,” the Washington-based lender said in a statement on its website Wednesday.

The program will also “catalyze much needed financial support from development partners,” enabling an immediate disbursement equivalent to about $185 million, the fund said.

Africa’s second-biggest copper producer became the continent’s first pandemic-era sovereign defaulter in 2020, and was seeking endorsement from the Washington-based lender as the government tries to finalize negotiations to revamp external liabilities that grew to $17.3 billion by the end of last year. Chinese lenders account for more than one-third of its official dollar debt.

The IMF had needed assurances from Zambia’s official bilateral creditors that they were willing to renegotiate. Those came on July 30, opening the way for the board to consider the bailout request after reaching a staff-level deal in December.

Zambia applied to restructure its obligations under the Group of 20’s Common Framework guidelines, which brings together members of the Paris Club of mostly rich creditor nations, and China, which has become the world’s biggest official lender. Beijing was reluctant to join at first, preferring to negotiate separately.

“Securing timely restructuring agreements with external creditors will be essential for the successful implementation of the new ECF arrangement,” the fund said. “Zambia is in debt distress and needs a deep and comprehensive debt treatment to place public debt on a sustainable path.”

The progress is welcome for the G-20 process after slow movement in the three countries that took it up. IMF Managing Director Kristalina Georgieva called it a “major milestone” for the Common Framework, as Zambian Finance Minister Situmbeko Musokotwane welcomed the program.

The debt reworking is far from over, and potential hurdles remain. Zambia still needs to sign a legally non-binding memorandum of understanding with the official bilateral creditors committee, which China and France co-chair. The authorities plan to conclude talks for this pact by the end of the year, the IMF said Thursday.

The government will then negotiate individual restructuring deals with each of its official bilateral creditors. It will also have to seek comparable treatment from private creditors, including the holders of $3 billion in eurobonds. Once it has agreement in principal with the commercial lenders, this will be implemented “through various modalities,” according to the IMF.

Zambia had been buckling under unsustainable debt even before the pandemic struck, after the government went on an infrastructure spending binge mostly funded by borrowing. The government had also been running up large successive budget deficits thanks in part to farm and energy subsidies.