Over the weekend, China, the UK and other government lenders agreed to negotiate a debt restructuring with Zambia. The move was met with headlines such as “China agrees landmark debt relief deal for Zambia” from the Financial Times. However, the truth is no debt relief deal has yet been agreed. All that has been agreed is a willingness to negotiate.
Zambia first applied for a debt restructuring through the G20s new Common Framework in February 2021. A debt restructuring means any change in the terms of the debt – which could be as small as reducing interest rates and the time over which a debt is to be paid – or as large as sizeable debt cancellation.
Under the Common Framework, the IMF and Zambia complete a Debt Sustainability Analysis, which calculates how much debt restructuring is needed to make the debt sustainable. This has been done but not made public. The Zambian Civil Society Debt Alliance and Debt Justice have calculated that government and private lenders need to cancel two-thirds of the debt to make the debt sustainable, using the IMF’s own methodology.
In agreeing to negotiate, the government lenders such as China and the UK, known as the Official Creditor Committee, said: “The creditor committee stresses that the Zambian authorities are expected to seek from all private creditors and other official bilateral creditors debt treatments on terms at least as favorable as those being considered by the creditor committee”.
Of Zambia’s external debt payments from 2022 to 2028, 45% are to Western private lenders and 37% to Chinese public and private lenders. We have been campaigning for BlackRock, Zambia’s largest bondholder, to agree to cancel at least two thirds of the debt. If BlackRock is paid in full, they could make 110% profit out of Zambia’s debt crisis.
However, BlackRock have refused to speak to us, or even to a UK Parliamentary Committee. Negotiations between Zambia and its private lenders might finally now begin this autumn, alongside the negotiations with the government lenders.
The one thing the statement by the Official Creditor Committee does is enable the IMF to agree a new $1.3 billion loan to Zambia. The IMF has a complex set of rules around lending to countries which it classes as having unsustainable debts, as it does with Zambia. Such countries must be seeking a debt restructuring – as Zambia is – but the Official Creditor Committee statement has given the IMF enough confidence the restructuring will happen that it can now sign-off on its loan.
Zambia defaulted on its debt payments to external private and government lenders in late-2020. The IMF requires it to negotiate a debt restructuring with those lenders in order to get a loan. But if those lenders refuse to accept a restructuring to make the debt sustainable, the IMF can keep lending to Zambia so long as it remains in default on recalcitrant creditors.
Zambia can use these policies to put pressure on BlackRock and other lenders to accept a sizeable debt cancellation – either accept a large debt cancellation, or get paid nothing.
With rising global interest rates many more countries are likely to default or renegotiate debts over coming months and years. Chad, Ethiopia, Sri Lanka, Suriname and Ukraine are among the countries which have already started to do so, and Ghana, El Salvador, Egypt, Malawi, Pakistan and Tunisia are among those which could shortly follow.
It is crucial for both people in Zambia and in countries around the world that lenders such as BlackRock are made to pay for the debt crises they have helped to create, rather than make mass profits out of those crises. You can stand with Zambia in its crucial negotiations over the next few months by joining our campaign here.