Deal to resolve Zambia’s debt crisis ‘likely’

Zambian officials met for the first time on Thursday with an official committee of the country’s international creditors as Lusaka seeks to broker a deal to restructure its unsustainable debt burden and unlock IMF funding.

The official creditors’ committee is made up of members of the Paris Club, an informal group of creditor countries that meets monthly in the French capital to seek solutions when debtor countries have payment problems, and China. Zambian officials joined the meeting in Paris via video link.

In 2020, Zambia suffered the first sovereign default of the pandemic era. At the end of 2021, it had an external debt of $17.27 billion, according to government data. About $6.6 billion of this sum was held by 18 official and commercial Chinese financiers.

In December, Zambia reached a staff-level agreement with the IMF for a three-year, $1.4 billion extended credit facility. But for the bailout to move forward, Zambia needs assurances from creditors that its debt can be restructured.

After talks in Lusaka with President Hakainde Hichilema and Finance Minister Situmbeko Musokotwane on Wednesday, IMF Deputy Managing Director Antoinette Sayeh stressed the need to reach an agreement on the Zambian debt crisis and called on all creditors to quickly find an arrangement.

“We urge creditors to provide financing assurances as soon as possible, as they are needed before IMF staff can submit Zambia’s program for consideration by the IMF Executive Board. This will allow Zambia to access resources from the Fund, and also unlock access to critical funding from other partners, to help drive its economic recovery,” Sayeh said.

Hope to reach an agreement

Claims that China was delaying Zambia’s debt relief because of its lack of experience with delicate debt restructuring and slow coordination among its official lenders prompted Chinese creditors to not be seen as an obstacle to a possible debt agreement.

“There is an emerging consensus that some sort of deal will be reached. The Chinese are very concerned about the optics of what is happening in Zambia,” says Eric Olander, editor of The China-Global South Project website.

“China and other bilateral creditors don’t want to be seen as an obstacle to an IMF bailout,” says Olander.

At this first meeting, Zambia will present its case for debt relief, but talks are unlikely to be concluded before Zambia’s target date of the end of June.

“These won’t be easy discussions,” says Olander. “The Chinese coalition alone is made up of at least a dozen different creditors, so getting them to agree with each other, let alone with multilaterals, bondholders and other bilateral lenders.”

Zambia’s long road to debt relief

President Hichilema has come a long way to mend the barriers with the IMF after the difficult relationship experienced under his predecessor, Edgar Lungu.

Following Zambia’s sovereign default, the G20 feared that a “debt tsunami” would engulf the most indebted countries on the continent, which is why, together with the Paris Club, it put in place a “framework common” designed to help more than 70 countries cope with the fallout of the pandemic with debt relief and restructuring.

However, the Paris Club needed the cooperation of China, which is not a member, given the high proportion of Zambia’s debt held by Chinese lenders, and in early May it was announced that China would co-chair the official creditors’ committee with France.

The Paris talks will determine whether Chinese and international lenders can work side by side to put in place a concrete plan for debt restructuring, which could also pave the way for debt restructuring talks between Chinese and international institutions. other indebted countries.

Will the Chinese presence be an advantage for Zambia?

“Different creditors will be looking for different things at the meeting,” said Hannah Ryder, CEO of China-based African consultancy Development Reimagined. African Affairs.

“Paris Club lenders will be interested in Zambia’s presentation of the IMF’s debt sustainability assessment, and therefore in Zambia’s plans to reduce spending – for example by reducing subsidies or increasing privatization, which are typical IMF policy prescriptions.

“Chinese lenders, on the other hand, will look to Zambia to outline its growth plans – as many of the projects China has lent to require a vibrant and growing economy to generate a return or even provide tax revenue to recycle into debt repayments”.

Having China in the room when Zambia presents its case can therefore help the country counter demands to cut spending, Ryder said.

She argues that spending more rather than less, allowing the economy to grow, could be Zambia’s best response to its debt problems – an approach that would be similar to that which high-income countries have taken in the face of Covid-19, but not one. likely to win favor with the IMF.

Whether the Zambian government takes that kind of economic outlook is unclear, but it will be the key question for analysts to consider coming out of this meeting, she said.

“Unless Zambia has a clear plan to revive its economy, taking into account the risks of rising interest rates and a risky and uncertain global economy, it is very difficult to know whether a bailout today will be really useful in the medium term. It all hinges on the quality of how Zambia spends now – and if that spending isn’t conducive to growth, I’m not confident of meaningful progress.

Can Hichilema’s reforms succeed?

On whether Hichilema’s reforms merit seeing him as a rising star for reform and democracy on the continent, Ryder remains skeptical.

Zambia – like many African countries – has a very difficult history of colonialism and dependency which makes it difficult to unlock its own endogenous development, and there are many forces inside and outside Zambia which will make this type of reform difficult to pursue, she concludes. .

Robert P. Matthews