The Upside Case and the Growth Penalty: A Quantitative Analysis of Zambia’s 2024 Sovereign Debt Restructuring and Its 2026 Unwinding

Abstract

Zambia’s 2024 Eurobond restructuring, agreed in June 2024 under the G20 Common Framework, provided significant headline relief but included a performance-linked hazard known as the Upside Case, a trigger that converts the long-dated, low-coupon Bond B into a far more expensive instrument if Zambia’s economy performs well over the period January 2026 to December 2028. Using a scenario based framework for net present value (NPV) calibrated to public terms and to the independent estimates of Debt Justice, this study answers three questions of direct relevance to policymakers, creditors and citizens: the likelihood and consequences of activation; whether the clause represents a growth penalty; and how future restructurings can be designed to aid rather than tax recovery. The research reveals that activation would boost the NPV of repayments to around US$2.8 billion (approximately 51% above the Base Case), squeezing effective relief from about 44% to about 15%, with yearly Bond B interest increasing from less than US$7m to more than US$100m. The trigger was finely balanced and not far with the IMF Composite Indicator hovering between 2.58 and 2.60, versus a 2.69 threshold, but recalculations on newer data put it at the cut off, and the export and revenue route strengthened on a copper led rebound. We show that the clause is a real growth penalty, procyclical and asymmetric, reversing the countercyclical logic of state contingent debt. The decisive evidence is Zambia’s own response: in June 2026 the Government bought back 97.91 per cent of Bond B, financed by a US$600 million African Development Bank loan, domestic reserves and a novel energy sector debt for development swap, and announced a clean up call to retire the residual by 25 June 2026, thereby extinguishing the trigger at a cost of over one billion dollars. The study closes with a design agenda for growth friendly, development aligned restructuring.