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China, IMF and investors can’t reach a deal on Zambia’s debt. What does it mean for other distressed African nations?
- Bilateral creditors such as China shoulder much of the burden and want bondholders to take a bigger hit
- The dispute could put other restructures on the continent in jeopardy, with Ethiopia expected to be the next in line, observers say
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When Zambia struck a debt deal with bilateral creditors to restructure US$6.3 billion in loans in June, Lusaka said it “a significant step” to restore debt sustainability.
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The International Monetary Fund (IMF) went further, saying it was a “breakthrough” and precedent-setting.
The IMF said it would use the deal as a template for other nations such as Ethiopia and Ghana that are also seeking debt restructuring under the G20’s Common Framework.
Under the 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 shouldering the rest.
As part of the agreement, Beijing and the other creditor countries – known as the Official Creditor Committee (OCC) – pushed for comparability of treatment (CoT) principle in which private bondholders would have to offer comparable debt relief.
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Zambia proceeded to seek debt restructuring from private bondholders but the terms they reached in October were rejected by the OCC and the IMF.
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