China under pressure to restructure loans to Zambia, analysts say
- Like many African nations, Zambia has borrowed heavily from China to finance projects under Beijing’s Belt and Road Initiative
- Country is seeking US$1.3 billion in financial assistance from the IMF and a six-month moratorium on interest payments on US$3 billion worth of Eurobonds
China is expected to come under pressure to restructure loans it has advanced to Zambia after the southern African nation asked bondholders for a six-month moratorium on interest payments on US$3 billion worth of Eurobonds.
The country was facing a “very challenging macroeconomic and fiscal situation” and needed “breathing space” to allow time for a restructuring plan to be agreed, the Zambian finance ministry said on Tuesday.
When asked for a comment, China’s foreign ministry did not specifically mention the debt restructuring issue but said the two countries were in talks.
“We are now engaged in friendly discussions with Zambia and we will do our best to assist Zambia to overcome the difficulties brought by the coronavirus,” it said.
Analysts say China, which is Zambia’s biggest single lender, is likely to come under pressure to restructure the loans.
Simon Quijano-Evans, chief economist for emerging markets at Gemcorp Capital in London, said that given Beijing was one of the largest lenders to Sub-Saharan Africa, “it is very important for countries in the region to be able to reach an agreement with China on debt payments”.
China held about half of Zambia’s US$11.2 billion worth of external debt, he said.
Zambia was approved to take part in the DSSI last month and China was likely to agree to deferring its debt repayments, he said.
Lusaka turned to Beijing for financial help after its revenue was slashed by a slump in the price of copper, which accounts for 70 per cent of the country’s exports.
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According to the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies in Washington, between 2000 and 2018, Lusaka borrowed US$9.7 billion, most of which came from Beijing, to pay for infrastructure projects, including roads, bridges, power dams and airports.
Zambia has been seeking a bailout from the IMF since 2014 but the talks fell through in 2018 after the fund questioned Lusaka’s massive borrowing when it knew it did not have the revenue to repay its debts.
Zambia’s problems started in 2011 when “the electorate voted for a president who wanted to spend the gains from higher copper prices”.
Since then the country had not only spent the money it made from selling copper but also borrowed heavily, he said.
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Bohlund said Zambia had been on an unsustainable debt trajectory for several years as political imperatives had dominated economic policy.
China was unlikely to agree to a write-down of its debt unless Lusaka also cut its commercial borrowing, he said.