Zambia is asking for more than $8bn of relief on its debts to Chinese lenders, private bondholders and other creditors, according to an IMF analysis, in a restructuring widely seen as a test of Beijing’s willingness to absorb losses on loans it has extended to developing countries.
After securing an IMF bailout last week, Zambia plans to reduce its debt payments by $8.4bn over the next three years, according to a fund analysis that was published on Tuesday. Further debt adjustment is likely later on, it added.
President Hakainde Hichilema’s government secured the $1.3bn IMF loan, two years after Zambia became the first African country to default in the pandemic following what the fund called “years of fiscal profligacy”. The country’s debts quadrupled between 2014 and 2019 amid a surge in infrastructure borrowing under Edgar Lungu, the former president, who lost elections last year to Hichilema.
With Lusaka owing about $6bn of its $17bn in external debt to Chinese lenders, China is its biggest creditor. Beijing’s handling of Zambia’s bailout is seen as a litmus test for how it deals with defaults by other developing economies, such as Sri Lanka and Bangladesh. In recent decades, China has surpassed the World Bank as the biggest foreign creditor to less developed countries. Loans are expected to sour as growth slows and global interest rates rise.
The IMF offered the bailout after bilateral creditors, including Chinese lenders, agreed in principle to debt relief. But Zambia must now negotiate the details of how to restructure those loans, which include $3bn of dollar eurobonds.
Zambia must cut down the amount that it spends on servicing debts from nearly two-thirds of revenues to about 14 per cent in 2025, and it should maintain this ratio for most of the next decade, the IMF said. “This would imply some additional cash debt relief [on top of the $8bn] will be needed over 2026-31,” the fund added.
The “initial read is no big surprise”, said Kevin Daly, investment director at Abrdn and a member of a committee representing Zambian bondholders, though he added that he had expected a larger adjustment over a shorter time horizon.
Lusaka hopes to finish talks with official lenders by the end of the year and will then start talks with private creditors. Zambia will ask creditors to agree to either outright writedowns of debt or to accept an extension of the term of their loan repayments.
Analysts have said that Beijing is likely to favour lengthening the time it takes to repay the debts instead of taking a more visible haircut. Bondholders, who would prefer to take haircuts, have expressed concerns that they will have to sign up to the terms favoured by China.
Chinese banks and other institutions extended loans to Zambia to build airports, roads and other projects that the country struggled to repay as the economy slowed and corruption mounted under Lungu.
In addition to the debt relief, Zambia is bracing for what the IMF called “a large, upfront, and sustained fiscal consolidation” to bring public finances under control. Hichilema’s government has agreed to eliminate fuel subsidies and to cut agricultural subsidies. It has pledged to protect social spending.
Zambia has also cancelled $2bn of mostly Chinese project loans that were in the pipeline and yet to be disbursed. Under the terms of the bailout, the IMF expects Lusaka to limit new external loans to those from concessional creditors, such as multilateral lenders, over the next few years.
Source: Economy - ft.com
