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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Zambia is struggling to come up with a debt deal that will keep both bilateral creditors like China and private bondholders happy. Photo: Bloomberg

Published: 3:00pm, 27 Nov 2023

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.

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.

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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