Campaigners say two-thirds of Zambia’s debt needs to be cancelled

Figures released today by the Zambian Civil Society Debt Alliance and Jubilee Debt Campaign UK show that external private lenders and other governments need to cancel at least two-thirds of Zambia’s debt. The campaigners argue large scale debt cancellation is needed to make Zambia’s debt sustainable.

Zambia is currently negotiating a restructuring of its debt with private and government creditors through the G20’s new Common Framework. Whether the restructuring leads to a sustainable debt will be a key test of the Framework both for Zambia and other countries in debt crisis.

Father Alex Muyebe, Chairperson of the Zambian Civil Society Debt Alliance, said:

“Both lenders and the previous Zambian government are responsible for plunging Zambia into the current debt crisis. The debt burden is increasing poverty in Zambia, preventing us from tackling and recovering from the pandemic and dealing with crises caused by rich countries such as climate change. Private lenders and other governments lent to Zambia at high interest rates and at high risk. Lenders need to accept they lent recklessly and agree a large-scale debt cancellation to allow the people of Zambia to tackle multiple external crises.”

Heidi Chow, Executive Director of Jubilee Debt Campaign UK, said:

“For three years Zambia’s debt has been bought and sold at 30 to 70 per cent below face value on financial markets. These high interest loans should never have been lent in the first place and now the rich owners of this debt stand to make massive profits out of the Zambian people. Large scale debt cancellation is the only sustainable way out of this crippling debt crisis and lenders need to take their fair share of responsibility. If private lenders refuse to agree the necessary debt cancellation, then the IMF and G20 governments should politically and financially support Zambia to stay in default on them.”

Zambia defaulted on interest payments to foreign currency bondholders in November 2020 and applied for a debt restructuring through the G20 Common Framework in February 2021. The G20 Common Framework allows for cancellation of debt to reduce it to a sustainable level by G20 governments, including China, but only if private lenders agree to at least the same amount of debt cancellation.

The G20 are guided by the IMF as to whether a debt is sustainable or not. The IMF has declared that Zambia’s debt is unsustainable and is due to complete its Debt Sustainability Analysis for Zambia soon. However, often these analyses are not made public.

The IMF’s current practice is that restructurings need to reduce the risk of debt crisis to moderate under its Debt Sustainability Framework, while leaving enough room for an economic shock not to push a country back into debt crisis. This means Zambia’s external debt payments need to be around 12% of government revenue. The Zambian Civil Society Debt Alliance and Jubilee Debt Campaign UK have calculated this means that around two-thirds of the external debt owed to private lenders and other governments needs to be cancelled, as well as all interest payments.

Of Zambia’s external debt 46% is owed to private lenders, 22% to China, 8% to other governments and 18% to multilateral institutions. The debt to multilateral institutions is not included within the Common Framework debt restructuring. The average interest rate on each creditor group is:

  • 6.1% external private lenders
  • 3.1% China
  • 4.8% other governments
  • 1% multilateral
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