Zambia is to pay $15.5m (£7.7m) to a British Virgin Isles-registered firm to settle a case at London's High Court.
Zambia took out the loan in the 1970s, mainly to pay for farming equipment
Donegal International - described by critics as a "vulture fund" - had taken the country to court seeking payment of a debt, and late payment penalties.
The firm had been seeking $55m in total - after buying a debt of $3.2m that Zambia originally owed to Romania.
The High Court had already ruled Zambia owed the firm $15m. But the decision has angered anti-debt campaigners.
It emerged in court that the two sides had agreed a sum of aproximately $15.5m after allowing for interest and payments already made - significantly lower than Donegal had wanted, but still a substantial profit for the firm.
The original debt arose from a $15m loan made by Romania in 1979, mainly for Zambia to buy farming equipment.
However, Zambia's economy ran into trouble and the country fell behind with payments.
The outstanding debt was bought by Donegal in 1999 at a deeply discounted price and it later sued to recoup the full amount plus penalties.
Campaigners claim the High Court's decision will undermine Zambia's plans for poverty reduction.
There have been a number of court cases involving so-called "vulture funds".
The International Monetary Fund describes "vulture funds" as companies which buy up the debts of poor nations cheaply as they are about to be liquidated, and then sue for the full value, plus interest.
Anti-poverty campaigners say such companies are unethical; and divert resources away from badly needed spending on health and education in very poor countries.
They also say that governments of the rich world should take action to prevent such cases.
Some international finance officials have also voiced fears that recent official debt relief for the poorest countries might encourage more legal claims as countries that no longer have to repay the World Bank, for example, may be more able to pay private creditors who go to court.