US, IMF visits put spotlight on China’s role in Zambia debt crisis

The dual trips last week are widely seen as a last-ditch effort to improve Zambia’s image with its creditors. Finance Minister Situmbeko Musokotwane said the country has done its part to ensure its $13.26bn external debt is restructured within the agreed framework.

“We are waiting for those who promised us that if we did this, they would deliver debt restructuring,” Musokotwane said as he expressed concern over delays to restructure the debt. “As for us, we have done our part, totally and on time.”

In August 2022, Zambia won IMF approval for a $1.3bn three-year loan programme to ease the pressure on its public finances and bolster the confidence of investors and creditors while it conducts restructuring discussions.

With the help of the IMF, Africa’s second-biggest copper miner was expected to become the second nation after Chad to complete a debt treatment process under the Common Framework for Debt Treatments that G20 countries and the Paris Club of official creditors launched in late 2020.  Five months later, successful debt treatment remains in doubt even as authorities remain hopeful it could be achieved by their March 2023 target.

Zambian authorities are concerned that further delay to reach an agreement on debt restructuring could derail recent positive traction on the macroeconomic front.

Resolving crisis

President Hakainde Hichilema says key lenders need to reach an agreement and help Zambia resolve its debt crisis “yesterday” to support the economic recovery process and also ensure the injection of fresh international investment in a country battling the effects of Covid-19 and the disruption of global supply chains. Zambia is a net importer, making it vulnerable to rising prices for vital commodities including oil, food and fertiliser.

China has been active in co-chairing Zambia’s Official Creditor’s Committee under the G20 Common Framework…..

If debt restructuring is not concluded soon, Hichilema told Georgieva in Lusaka, “it is going to distort all the good efforts that we have been making to reconstruct the economy and bring investment.”

To help meet requirements for the debt restructuring, Zambia has had to cut off “poorly targeted” energy subsidies. It has also realigned the provision of cheap agriculture inputs to mostly peasant farmers in rural areas.

The Central Bank has had to tighten liquidity to rein in inflation, while the government is also implementing reforms to cut down on wasteful expenditures. Many local contractors and suppliers remain unpaid, which has hurt domestic liquidity.

Debt uncertainty has also weighed on the local currency, which has lost 20% of its value from a high of just over 15 Zambian Kwacha per $1 in September 2022 – the steepest decline in the local currency since Hichilema took over the reins. Meanwhile, Zambians are battling up to eight hours of power cuts daily following a poor rainy season which slashed production at key hydroelectric plants.

All this is hurting Hichilema politically in a country where voters clamored for immediate improvements after dumping incumbent President Edgar Lungu in 2021.

Reform agenda

The IMF however has applauded Hichilema’s economic reforms and is seeking to support Zambia’s recovery.

According to an insider who attended both meetings, Hichilema requested that Georgieva and Yellen visit Zambia because of his “concern” that creditors were failing to make any progress.

I know the Chinese have been a barrier to concluding the negotiations.

“China wants an ‘equal treatment’ of all creditors including for domestic arrears. But how on earth is that even possible?” said a Treasury source who attended the meetings but was not authorised to talk to the press.

Another source who spoke anonymously said China had been advocating that it should not be treated like Western lenders because it still considers itself a developing country.

Earlier, Georgieva said the IMF had reached an understanding in principle that China would accept a net present value reduction on the basis of significant stretching of the maturities and reduction of interest as part of the process to resolve the debt conundrum.

Yellen for her part has bluntly accused China of extending Zambia’s debt troubles. She said the negotiations had taken “far too long already.”

“I know the Chinese have been a barrier to concluding the negotiations,” Yellen told journalists in Lusaka. “I recently met with my Chinese counterpart just a few days ago in Zurich and I specifically raised the issue with Zambia and asked for their cooperation in trying to reach a resolution.”

The Chinese Embassy in Lusaka released a statement saying China continues to make progress on Zambia’s debt. China accounts for $6.6bn of Zambia’s foreign debt, most of it tied to infrastructure projects financed and built by Chinese companies.

“China has been active in co-chairing Zambia’s Official Creditor’s Committee under the G20 Common Framework and working hard with other parties to seek a sustainable solution in line with the principle of common actions and fair burden-sharing,” the statement read.