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Jevans Nyabiage

It has taken time but after 28 months of negotiation, Zambia has struck a precedent-setting deal with China and other bilateral creditors to restructure US$6.3 billion in loans, of which US$4.1 billion is owed to China.
Zambia announced on Thursday that it had reached an agreement on a comprehensive debt treatment with its official creditors under the G20 Common Framework, providing much-needed financial breathing space for the copper-rich nation.
The Zambian government described it as “a significant step towards restoring Zambia’s long-term debt sustainability”.
“But the hard work is not over yet,” Zambian President Hakainde Hichilema tweeted.
“Now we must drive forward to find a resolution with our private creditors, so we can focus on revitalising our economy and building a brighter future for all Zambians.
“Resolving our debt overhang will help attract investment which will create jobs and improve livelihoods.”
China calls for multilateral lenders to ease Zambia’s debt burden
It has been more than two years since Zambia became the first African country to default on its external debts in 2020 due to Covid-19 and applied for debt relief.
The process faced repeated delays, with the World Bank and the International Monetary Fund (IMF) blaming China for the slow progress in the debt restructuring.
Under the new deal, China – as Zambia’s largest bilateral lender – has the biggest burden by agreeing to restructure US$4.1 billion of the total – with France, Britain, South Africa, Israel and India providing the rest.
Zambia did not secure debt writedowns but the official creditors agreed to long extensions on debt repayment.
Further, Zambia’s debt will be reorganised over 20 years, with a three-year grace period. Zambia will also seek a similar treatment with private creditors, including bondholders, who hold an additional US$6.8 billion in loans to the country.
The writedowns are in line with China’s preference for debt restructuring rather than write-offs.
Traditionally, China does not cancel concessional loans, lines of credit or credit loans to countries. Instead, it lengthens the repayment period or reduces interest rates. Even so, China traditionally waives interest-free loans, which constitute just a small fraction – about 5 per cent – of the total loans China advanced to African countries.
Zambia’s Ministry of Finance and National Planning said the debt treatment involved significant maturity extensions and cuts in interest rates, which would allow for the allocation of additional financial resources towards critical public investment, particularly in health, education and infrastructure development.
Under the agreed terms, the official creditors will provide a debt treatment contingent on Zambia’s debt-carrying capacity at the end of an IMF-supported programme.
“The agreement is expected to pave the way for the approval by the IMF executive board of the first review of the fund-supported programme in the coming weeks, allowing for the next tranche of IMF financing of about US$188 million to be disbursed,” Zambia’s finance ministry said.
However, Zambia will have to meet some conditions, which will be assessed under the IMF and World Bank debt sustainability framework for low-income countries.
Chinese consortium to build US$650 million toll road in cash-strapped Zambia
The creditor committee, co-chaired by China and France, agreed that the debt treatment would be adjusted if conditions improved enough to justify an upgrade from “weak” to “medium” debt carrying capacity, in which case principal reimbursements would be accelerated and interest payments increased.
Official creditors agreed with the Zambian government that debt denominated in the local currency would be excluded from any treatment.
Leaders, including French President Emmanuel Macron, US Treasury Secretary Janet Yellen and the World Bank and IMF chiefs, welcomed the decision.
Macron said the deal was a “historic achievement” and the creditor committee “remain mobilised to ensure that other countries caught in debt traps benefit from a multilateral response”.
Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, said the deal was an optimal outcome for Zambia and the three-year grace period gave it some breathing room.
“We still need to see the minutiae of the deal but it appears that creditors have avoided writedowns by reducing interest rates and extending maturities,” Satchu said.
He said debt writedowns were something that China in particular had rejected, arguing that the multilateral financial institutions should also be treated on equal footing with China.
Satchu said there was also US$3 billion in outstanding Eurobonds that remained outside the scope of the agreement.
“It will be important that this asset class is also folded into the arrangement,” he said.
“This template looks as if it can be applied at scale.”
[The] deal is very welcome to Zambia but it is China who got what it wanted
Stephen Chan, SOAS
Stephen Chan, a professor of world politics and international relations at the School of Oriental and African Studies in London, said the restructuring meant a much longer period of repayment and therefore less concentrated amounts of repayment.
“This will be a relief for Zambia, making public finances for now more manageable. But the debts remain on the books, so China retains for accounting purposes the full value of the loans plus interest. There has been no ‘haircut’,” Chan said.
“[The] deal is very welcome to Zambia but it is China who got what it wanted.”
For other countries, Satchu said the lesson was “if you borrow, one day, even if stretched far into the future, the piper will want to be paid for his tunes”.
IMF managing director Kristalina Georgieva said the deal was a significant milestone for the G20 Common Framework under which China, India, Saudi Arabia and Paris Club creditors joined forces to agree to deep debt relief for Zambia.
“I look forward to the executive board taking up this review in the coming weeks and the continuation of our productive collaboration with Zambia in the period ahead,” Georgieva said.


According to World Bank Group president Ajay Banga, Zambia will be eligible to receive World Bank support in the form of grants from July 1 next year.
Tim Jones, head of policy at Debt Justice, a British charity, said Zambia’s private creditors such as BlackRock now needed to urgently agree to significant debt cancellation.
“Private loans were lent at high interest rates, and have been trading at low prices, so piecemeal debt relief will still leave lenders making large profits,” Jones said.
Zambian Civil Society Debt Alliance and Debt Justice have calculated that Zambia’s external private and government lenders need to cancel two-thirds of the debt to make it sustainable.
Debt Justice said Zambia owed US$4.5 billion to Western private creditors: US$3 billion in foreign currency bonds, the largest known holder of which is BlackRock, and a further US$1.5 billion as direct loans to Western private creditors, such as Israel Discount Bank (US$362 million), Investec (US$351 million) and Standard Chartered (US$268 million).
Zambia owes a further US$1.4 billion to Chinese commercial lenders, US$2.8 billion to Chinese bilateral lenders and US$1.1 billion to other governments – the largest being India with US$300 million, Britain US$240 million and South Africa US$157 million, according to Debt Justice.


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China-Africa relations

Zambia has struck a debt deal with China and other major creditors. How will it work?

Zambian President Hakainde Hichilema says a deal may be done but the hard work is not over. Photo: AP

News

China

Diplomacy

Beijing is the African country’s biggest bilateral lender and has not taken any haircuts as part of the agreement
Instead, debt repayment periods have been extended and a three-year grace period introduced


Beijing is the African country’s biggest bilateral lender and has not taken any haircuts as part of the agreement.


Zambia