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UPDATE 2-IMF says will continue talks with Zambia, progress made

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(Adds creditor reaction)

LUSAKA, March 4 (Reuters) - The International Monetary Fund (IMF) said on Thursday that headway had been made in three weeks of talks over a programme for Zambia and discussions would continue, though a number of challenges remained.

The southern African copper producer became the continent's first pandemic-era sovereign default after missing a coupon payment on a dollar bond in November.

"Significant progress has been made and discussions are expected to continue in the next few weeks, following additional technical work on the appropriate policy package," the IMF said in a statement.

The IMF said work towards implementing fiscal reforms to correct large fiscal imbalances, ramping up revenues and improving governance was still needed, however.

Zambia's debt load was considered unsustainable even before the pandemic. That debt includes around $3 billion in outstanding Eurobonds and another $3 billion owed to China and Chinese entities. Tensions between those two groups of creditors have so far stymied attempts to restructure Zambia's debt.

In a separate statement on Thursday, Zambia's finance minister Bwalya Ng'andu said his government was committed to securing an IMF programme.

"We value the work we have embarked on with the IMF and will pursue our discussions on detailed policy measures to return our economy and public finances to a sustainable trajectory," he said.

Creditors welcomed the announcement but were cautious about the speed of progress ahead.

"I think this (is) enough to keep the bonds supported for now as it suggests talks will continue, but we all know that reaching an agreement will take time given the track record of Zambia when it comes to negotiations with the Fund," said one investor holding the bonds.

Lusaka asked for a programme with the Fund in December and requested debt relief in January under a new common framework backed by the Group of 20 major economies and designed to help the world's poorest countries tackle their debt burden.

Zambia's 2027 bond traded 0.4 cents higher at 58.667 cents in the dollar, while the 2024 issue was flat at 59.26 cents, Tradeweb data showed. (Reporting by Chris Mfula in Lusaka, Rodrigo Campos in New York and Joe Bavier in Johannesburg, editing by Karin Strohecker in London)