Zambia’s Long Walk to Debt Recast

By Derrick Silimina

In his quest to jump-start the ailing economy, tackle external debt, tame inflation, create jobs for young people and inspire the confidence of international investors, President Hakainde Hichilema’s administration recently secured a deal in principle with the International Monetary Fund (IMF) that it hopes will anchor talks with creditors.

While the debt crisis is once again in the spotlight, stakeholders have been playing hide-and-seek over who is responsible for blocking a comprehensible deal to restructure the country’s debt stock. 

Although Zambia seeks to rework as much as $17.3 billion of external debt, it faces a complex test case for international efforts to tackle the looming crisis. 

United Kingdom Minister for Africa Vicky Ford recently said that Zambia’s debt restructuring efforts are being delayed by one international creditor that seems to be taking more time to make a decision.

Arguably, China is the largest creditor in Africa and it is part of the G20 Debt Service Suspension Initiative (DSSI), which is supported by the World Bank and the IMF, and has suspended debt payments to dozens of the world’s poorest countries. 

Zambia’s commercial and state-owned Chinese lenders account for over $5 billion, making the Asian country by far the biggest creditor, according to data from the Ministry of Finance. 

According to financial analysts, Chinese creditors helped finance a spending splurge that led to a socio-economic crisis under Edgar Lungu’s fallen regime.

In this context, Minister of Finance and National Planning Situmbeko Musokotwane has shared his hope for rapid progress on Zambia’s debt restructuring. 

“The New Dawn administration of President Hakainde Hichilema has a duty to the Zambian people to transform the country’s economy, so that it achieves sustainable growth, becomes resilient, more attractive to investors and internationally competitive. This methodical approach will help us lift our people out of poverty through the creation of decent jobs, development of enterprises, and sustained formation of wealth,” Dr Musokotwane said. 

This was during the just-ended World Bank Group and its Bretton Woods Partner, the IMF Spring meetings at the IMF Headquarters in Washington, DC, United States of America. 

COMPLETED 

The IMF has since confirmed having completed a joint debt sustainability analysis for Zambia to assess debt relief and strengthen its return to sustainable debt levels.

 

Speaking during the same event, IMF Managing Director Kristalina Georgieva commended Zambia for making impressive progress in implementing measures under the country’s economic reform programme. 

“We share the hope for rapid progress on Zambia’s debt restructuring so that the IMF Board can soon consider the authorities’ (Zambia) programme. This comes at a crucial time when we are entering a new phase of the debt restructuring process with the critical path to form the Official Creditor Committee,” Georgieva said. 

Following the Zambian Government’s concern at the delays in the formation of the Official Creditor Committee under the G20 common framework for debt restructuring, the IMF further announced that China is now committed to join the creditors’ committee on Zambia’s early debt resolution. 

Zambia, which became Africa’s first pandemic-era sovereign defaulter in 2020, has been seeking to restructure its dollar obligations under the Group of 20’s Common Framework, a set of guidelines that the most powerful countries drafted to mitigate debt crises in poorer countries. 

Speaking during the G20 Finance Ministers meeting, China’s Finance Minister Liu Kun affirmed that China, with the principle of collective action and fair burden sharing, is willing to implement the G20’s Debt Service Suspension Initiative in a methodical fashion on a case by case basis. 

In its latest report, World Bank Group President David Malpass met with Minister for Finance and National Planning Situmbeko Musokotwane of Zambia. 

COMMENDED 

President Malpass has commended Zambia’s progress in implementing fiscal and structural reforms and improving public service delivery in health and education. 

President Malpass also welcomed Minister Musokotwane’s thoughts regarding the impact of the war in Ukraine on Zambia. 

Malpass and Musokotwane further discussed the World Bank Group’s (WBG) support through IDA19 and IDA20, with projects under preparation for FY22 for a total amount of U$560 million. 

Malpass underscored to Dr Musokotwane the need for a deep and rapid debt restructuring for Zambia. 

The World Bank head welcomed China’s announcement to join the creditors committee for Zambia under the G20 Common Framework adding that a potential budget support operation from the World Bank could accompany a debt treatment plan by creditors and an IMF programme once it is approved. 

“Urgent action from the international community is critical at this point to support Zambia’s macroeconomic stability and debt sustainability to spur growth and poverty reduction,” Malpass stated. 

POSITIVE 

Some local financial experts are positive about the outcome of the debt talks at the just-ended Spring summit and they anticipate the strengthening of the economy. 

Zambia Revenue Authority Board chairperson Dr Caleb Fundanga recently acknowledged that the slight appreciation of the Kwacha in recent days can be attributed to China’s commitment to join the Official Creditors Committee for Zambia’s debt restructuring. 

According to ZANACO’s Indicative Forex Rates as at April 26, the Kwacha was buying at K17.03 and selling at K17.36. 

And economist Chibamba Kanyama says most foreign investors believe in President Hakainde Hichilema as evidenced by the number of invitations he receives to officiate at international investment forums. 

“Zambia is on the international radar. Foreign investors are highly confident about the prospects of the Zambian economy,” Kanyama said. 

Certainly, in the spirit of progressive economic fundamentals, China’s recent pronouncement and commitment is an important building block to cement Zambia’s case for debt restructuring. 

“Thank you to China and other creditors for agreeing to join the common framework on debt restructuring... we are on course,” Hichilema stated.