Zambia’s finance minister has rejected a call by China for the World Bank and other multilateral lenders to join a restructuring of the country’s debt and warned that delays to the relief are holding back economic recovery in Africa’s second-biggest copper producer.
Situmbeko Musokotwane said in an interview that “time is of the essence” to finish a restructuring of about $13bn of external debt this year, three years after the southern African nation defaulted on it.
He signalled that Beijing’s demand was a distraction from talks on specific terms for reducing the loans. “Discussions at higher levels like those just make our situation worse, because what we are looking for is urgent solutions, not discussions that may drag out the matter,” Musokotwane said. “We should all just focus on and get the debt [relief] delivered.”
China is Zambia’s single biggest creditor, with about $6bn of infrastructure loans spread among several Chinese banks. About $3bn is owed to holders of all the country’s US dollar bonds.
Beijing’s demand to include multilateral lenders would upturn a decades-old rule in sovereign lending that they should be exempt from debt restructuring because they act as lenders of last resort and charge little interest.
China last year agreed in principle to give Zambia relief in tandem with other official creditors through a G20 process known as the common framework.
But since then, detailed plans for a restructuring have stalled and left President Hakainde Hichilema’s government unable to access a $1.3bn IMF bailout or to resume paying its debts. China signalled its latest objection in January when a spokesperson for its foreign ministry said that “the key to easing Zambia’s debt burden . . . lies in the participation of multilateral financial institutions and commercial creditors in the debt relief efforts”.
As well as conflicting with existing rules, the demand also indicates that Beijing objects to basic tenets of Zambia’s debt restructuring rather than haggling over specific terms. On a trip to Zambia last month US Treasury secretary Janet Yellen called China a “barrier” to a deal. Multilateral development lenders make up less than $3bn of about $7bn of external debt that Zambia excluded from the restructuring last year. Lusaka has asked the remaining creditors to agree to reduce the overall value of their claims by about half, or more than $6bn, either through taking direct losses on principal or reducing interest rates and extending repayment.
Beijing is known to be reluctant to set any precedent for taking direct haircuts on its loans to developing nations. But analysts have said Chinese banks could cut their rates low enough to meet Zambia’s debt reduction target and still receive more than Lusaka would pay multilateral lenders. Until official creditors agree to specific terms, Zambia cannot easily secure a deal with private bondholders. “We are concerned about the delays, and we would have liked this to have happened much faster,” Musokotwane said.
Zambia believed it was making progress with creditor engagements and could show its fiscal plans were on track, he said, adding: “For the year just ended, it has been one of the best fiscal performances in decades,” with revenues and spending on target. But this year’s budget and government plans to protect social spending assumed the debt restructuring would take place this year, he added. “There are human beings behind this . . . all this requires that the burden on our shoulders must be removed.”
Some creditors have questioned the economic assumptions behind Zambia’s targets for debt relief, such as a requirement to cut debt to below 90 per cent of exports by 2027, with some suggesting the level could be higher. Others have said it would be fairer for foreign investors in Zambia’s local currency bonds, currently excluded from the restructuring, to also take haircuts. Any inclusion of domestic bonds in the restructuring would “would risk unravelling macroeconomic stability” and will not be considered, Musokotwane said.
Credit story: Financial Times
