Zambian Treasury Secretary Fredson Yamba announced that the country had reached an agreement with the China Development Bank (CDB) to defer debt repayments by six months to April 2021. This announcement comes on the heels of recent revelations that Zambia had defaulted on a $42.5 million interest payment on its Eurobonds that was due by October 14.
Yamba indicated that Zambia would pursue similar arrangements with other creditors amid a foreign debt crisis in the country that is estimated at $12 billion, or 80% of its GDP. In fact, just last month, Zambia requested its Eurobonds payments be suspended for six months. Moreover, it has defaulted on previous repayments of loans for construction projects; some of these have already been suspended or ‘abandoned’.
The Treasury Secretary said that this gesture by the CDB would give Zambian authorities time to “focus efforts on completing its overall debt strategy aimed at restoring public debt sustainability”. Zambia’s woes have only been intensified during the ongoing pandemic due to plummeting commodity prices.
Although China’s debt relief has been welcomed, some experts have suggested that the lack of transparency surrounding Chinese loans works against Zambia. Yamba, for instance, did not reveal the amount of debt owed to China, and the terms of these loans remains largely unknown; however, Zambian government data from June 2019 suggests that it owes the CDB alone upwards of $311 million.
The co-founder and managing editor of the China Africa Project, Eric Olander, says, “The lack of transparency related to China’s negotiations with borrowers, an accurate accounting of the true amount of Chinese debt and the terms of those loans, sends a signal to the market that directly contributes to the exceptionally high-risk premium that African sovereigns encounter when they need to borrow money.”
He adds, “Without access to capital, the liquidity crisis in Africa worsens, contributing to inflation that pushes up prices and eats away at what’s left of consumers’ disposable income.”
He goes on to say that, similar to the G-20’s decision to offer a six-month extension of its Debt Service Suspension Initiative (DSSI), the CDB’s debt relief plan “is nothing more than the bare minimum”, as they will still be “repaid in full, just a few months later than what was expected”. Likewise, Zambia has also been offered just a 30-day ‘grace period’ for its Eurobonds repayment.
China’s offer of deferment comes three months after Zambian President Edgar Lungu asked his Chinese counterpart Xi Jinping for “debt relief and cancellation”. In return, Lungu pledged his allegiance to upholding China’s interests at the United Nations (UN), and his enduring support for the ‘One China Policy’. Indeed, he even celebrated the imposition of the new national security law in Hong Kong, which critics say threatens the autonomy and democratic principles of the special administrative region (SAR). The president also reiterated his commitment to the Forum on China-Africa Cooperation, which has yielded several development projects.
Chinese companies have seized control of Zambia’s copper industry, which accounts for 70% of the country’s export revenues. Given that Zambia’s external debt was estimated at 35% of its GDP in December 2019, and that the coronavirus has likely only exacerbated these figures, its dependence on China is only growing. In fact, its external debt was $1.9 billion in 2011 and had reached $10 billion by 2018. China accounts for 44% of Zambia’s debt, and there are now over 22,000 Chinese nationals living in Zambia, in charge of 280 companies.
Accordingly, S&P Global Ratings Services has now “downgraded its assessment of Zambia’s debt to ‘selective default’”. Against this backdrop, allegations of China practicing ‘debt-trap diplomacy’ are only likely to grow louder.
China Development Bank Grants Zambia Six-Month Deferment on Debt Repayments
China’s offer of deferment comes three months after Zambian President Edgar Lungu asked his Chinese counterpart Xi Jinping for “debt relief and cancellation”.
October 30, 2020
Zambian Treasury Secretary Fredson Yamba SOURCE: ZAMBIA DAILY MAIL LIMITED