Zambia Attempts to Restructure Its Debt

Zambia is holding meetings with the Paris Club and China to restructure its debt. The discussions are part of President Hakainde Hichilema's efforts to repair his country since his election last year.

In 2020, Zambia experienced its first pandemic-era sovereign default. According to the government, Zambia had an external debt of $17.27 billion by the end of 2021, which was 120 percent of its GDP. China is Zambia's most significant lender; 18 Chinese government agencies and financial lenders held $6.6 billion of that debt.

Debt Negotiations

In December 2021, the Zambian government reached a deal with the IMF for a $1.4 billion three-year extended credit facility. It will only get the money if its lenders agree to restructure the debt.

As Zambia restructures its debt, it will have to contend with different interests from its lenders. The Paris Club lenders would like Zambia to focus on the IMF's sustainability assessment which calls for cutting spending, subsidies, and increasing privatization. But the Chinese lenders are more inclined toward Zambia's plans for economic growth, as their projects in Zambia rely on a growing economy and tax revenue for returns.

China's presence in the negotiations may work to Zambia's advantage. It will give the country the chance to negotiate for a less austere deal and let it focus more on growth, which its people desperately need.

China’s Role in Zambia’s Debt Restructure

China has become a significant lender in Africa, extending $160 billion in loans to the continent since 2000. Its response to Zambia's debt restructure will have consequences for other nations in Africa and elsewhere, like Sri Lanka, which recently went into default, and Pakistan, which is close to default. They are watching to see how lenient, if at all, China will be. Conversely, China is concerned that leniency will set a bad precedent and lead to losses on its projects and loans.

Chinese debt usually comes from multiple institutions with varying interests, under varying terms and controversially under unknown terms. China is facing circumstances where it must coordinate its institutions to develop a viable position. It has been gaining experience giving out debt; now, it has to gain experience restructuring it.

In its medium-term budget on July 9th, the Zambian Ministry of Finance announced the cancellation of $2 billion in infrastructure projects and talks to increase parliamentary oversight on borrowing as part of its restructuring plan.

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