Zambia disgruntled over debt restructuring delays as China pushes for multilateral proposal

By Yara Rizk

Posted on Tuesday, 14 February 2023 18:03, updated on Wednesday, 15 February 2023 16:32
Zambian President Hakainde Hichilema ©Andy Buchanan/POOL/AFP

In default since 2020, Zambia is struggling to convince China to restructure its share of the debt, which amounts to more than $6bn. While no agreement has been reached, Beijing is calling on multilateral creditors to join the effort, raising fears that talks could be further prolonged.

China, Zambia’s largest creditor, has called on the World Bank and other multilateral lenders to join an effort to restructure the southern African country’s debt, which is valued at more than $13bn.

“Multilateral institutions and private creditors hold the majority of Zambia’s foreign debt, at 24% and 46% respectively,” Chinese foreign ministry spokesperson Mao Ning told a news conference. “So their participation in efforts to alleviate this debt is crucial.”

Chinese loans in Zambia spread across several banks, amounting to $6bn in addition to $3bn provided by other lenders.

A diversionary stance

China says it wants “equal treatment” for all creditors, including those holding the country’s domestic debt. “But how can this be possible?” says a Zambian treasury source while speaking with Jeune Afrique and The Africa Report on condition of anonymity.

The government fears that this could see negotiations drag on. For Zambian Finance Minister Situmbeko Musokotwane, “time is of the essence”.

“Discussions at higher levels like those just make our situation worse, because what we are looking for is urgent solutions, not discussions that may drag out the matter,” he told the Financial Times. “We should all just focus on and get the debt [relief] delivered.”

Washington, meanwhile, has been lobbying for several months for creditors to offer “debt relief for Zambia, especially China, which is an obstacle to any agreement”, as US Treasury Secretary Janet Yellen explained from Lusaka on 23 January during an African tour.

Zambia has been facing default on its foreign debt – estimated at $13.26bn – since 2020. As negotiations on the debt restructuring continue, the government is advocating for a discount or an extension of repayment deadlines.

Change of strategy

In 2020, at the height of the pandemic, Zambia became the first African country to default on its external debt. However, Lusaka officially obtained IMF approval for a $1.3bn aid programme over 38 months.

This aid was made possible by the commitment of certain bilateral creditors, including China and France, to negotiate the restructuring of the country’s debt.

In that respect, Beijing had indicated in 2022 that it would participate in the G20 common framework, dedicated to resolving persistent insolvency and liquidity problems in parallel with the implementation of a reform programme supported by the IMF.

But since then, China’s approach seems to have changed: negotiations have been unsuccessful. This status-quo has prevented President Hichilema’s government from accessing the famous aid programme.

Hindrance to economic efforts

On a visit to Lusaka by IMF Managing Director Kristalina Georgieva, the Zambian president told her: “If the debt restructuring is not concluded quickly, it will have a negative effect on all the efforts we have made to rebuild the economy and attract investment.”

The country’s economic indicators are already down. GDP growth was at 2% in 2022 with a trade deficit of $26.2m and inflation at almost 10%.

In order to meet debt restructuring requirements, Zambia has had to remove “poorly targeted” energy subsidies, analysts say. These measures have significantly affected the country’s poorest, or 60% of the population.

The IMF’s objective is to reduce the debt service/state revenue ratio to 14% in 2025, compared to more than 60% at present.

This article has been amended in accordance with a correction run by the Financial Times: Musokotwane did not reject a Chinese call to include multilateral lenders in the debt restructuring as initially reported. He only expressed concerns that talks might drag on as a result.

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