Since taking office in August 2021, Zambian President Hakainde Hichilema (HH) has grappled with the huge and sometimes secret foreign public debt he inherited from his spendthrift predecessor, Edgar Lungu. It is officially calculated at $14.1 billion, but could be higher. In 2020, Lungu’s Zambia became the first African country to default on its external debt, failing to service its Eurobonds.

Part of HH’s campaign has been to to cancel public projects costing over $2 billion. He also tabled the Public Debt Management Bill aimed at strengthening parliamentary oversight of borrowing and limiting it to 65% of GDP, said Isaac Mwaipopo, executive director of the Center for Trade Policy and Development of Lusaka. The ISS today. He said HH had set up a debt management office to ensure future debt was sustainable and had launched an audit to ensure state-purchased services were value for money. -price.

At the heart of the government’s debt management strategy is the $1.4 billion interim loan it negotiated with the International Monetary Fund (IMF) last December. This should help pay off his debt and maintain social services.

But the loan is conditional, mainly dependent on the government negotiating debt relief under the G20-Paris Club common framework for debt treatment. This was adopted in 2020 to help highly indebted countries like Zambia emerge from the financial crisis induced by Covid-19.

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It took time for the HH government to muster its multitude of creditors. Some blame China, saying it has been the most reluctant to restructure debt because it is the biggest creditor. The China Africa Research Initiative in Washington DC calculated that 18 major and minor Chinese financiers have provided loans to Zambia and its state-owned enterprises since 2000. It indicates that Zambia’s debt to China totals around $6.6 billion – almost double what the Lungu government has publicly acknowledged.

Lungu’s secret borrowings from China made it impossible for other creditors to establish the extent of the loans. As a result, they were reluctant to offer debt relief to Zambia lest the government use the money saved to covertly service its Chinese loans.

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But now all of Zambia’s creditors – government and private – are negotiating debt restructuring together. As the largest lender, China co-chairs the creditors’ committee, established under the Common Framework, which met for the first time last month. France is the other co-chair and South Africa is the vice-chair. The committee met again on Monday and was expected to announce a deal this week.

The G20 launched the Common Framework after it became clear that its debt service suspension initiative for 2020 – which deferred debt service payments for countries in difficulty so that they could fight the Covid- 19 – would not be sufficient for all countries. The common framework allows for more flexible and extensive debt service deferrals for those facing liquidity challenges. For countries like Zambia with unsustainable debt, it also allows for deeper loan restructuring to make them more sustainable.

Clear plans and “haircuts”

Mwaipopo says Zambia has requested the cancellation of part of the public debt, the reduction of certain interest rates and the extension of certain repayment terms. He noted, for example, that private creditors probably wouldn’t be willing to “take a haircut” — that is, write off some debt — but public creditors might.

Mwaipopo praised HH’s efforts, including the IMF deal and his assurances that Zambia remained committed to repay. “But beyond the restructuring of the public debt, we would like to know what other plans the government has to unlock the economic potential, as well as how it can support some of the fruits at hand, the sectors that can help create jobs and poverty. relief, especially in the short term. He said Zambia needed “a clear plan for economic recovery”.

The IMF said the debt restructuring agreement expected this week would be enough to officially ratify the $1.4 billion loan to Zambia. However, Neo Simutanyi, head of the Center for Policy Dialogue in Lusaka, says the IMF would also need assurances that the HH government has a credible plan to fix the mess Lungu has also left in the copper mining industry. .

Playing in front of the public gallery, Lungu clashed with international copper miners, liquidating or nationalizing mines and thus shutting down an industry that Zambia depends on to earn foreign exchange. Simutanyi said HH did not specify how he would resolve the issue. Although he was a businessman who undoubtedly believed in the privatization of the mines, he seemed constrained by the unpopularity of foreign mining companies with many Zambians.

Simutanyi thinks the IMF would need assurances that HH could revive copper mining. This is vital to earning the money needed to pay off its IMF loan and debts, and to cover the salaries of 40,000 new civil servants – mainly teachers and health workers.

Test cases

Zambia bears a wider responsibility in restructuring its debt as it has become a test case for the Common Framework. And so Mwaipopo says his creditors are reluctant to give too much up front and set costly precedents. Ethiopia and Chad are next on the list, having also entered into the framework and started negotiations.

Other African – and non-African – countries are expected to follow soon. IMF Managing Director Kristalina Georgieva recently warned that a global economy heading downstream would aggravate the crises of the 30% of emerging countries and the 60% of low-income countries that are already over-indebted or close to over-indebted.

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Beyond other actions by the IMF such as the release of $650 billion in special drawing rights in 2021, “decisive action by all parties concerned is urgently needed to improve and implement the common framework for the G20 for the treatment of debt,” she said.

“Major lenders – sovereign and private – need to step up and play their part. Time is not on our side. It is essential that the creditors’ committees of Chad, Ethiopia and Zambia make as much progress as possible in their meetings this month. »

First published by The ISS today

Peter Fabricius, Consultant, Institute for Security Studies (ISS), Pretoria.