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Zambia’s debt restructuring

By MUBANGA LUCHEMBE

President Hichilema vowed not to favour Chinese creditors in debt restructuring of Zambia’s humongous external debts. Zambia’s debt woes triggered the continent’s first pandemic-era sovereign default in 2020.

 The newly-elected government is in the process of restructuring about US$15bn external debts in order to secure a US$1.4bn IMF loan. Talks with creditors are due to take place in the coming weeks. The restructuring is seen as a test case for whether China would accept losses from a surge in loans to Africa in the past decade. 

Annual Chinese lending to Africa peaked at just below US$30bn in 2016.  “We want to resolve the debt situation – it has to be resolved,” President Hichilema recently spoke in interviews with Western-controlled media outlets. “It’s good for Zambia. It’s good for creditors, because in the situation we were when we took office, it was a no-win situation. No one was benefiting.”

Last month, the Paris Club group’s head of wealthy creditor nations warned that China’s increasingly dominant role as a lender to poor countries deterred many from seeking debt relief. About US$6bn of Zambia’s external debt is owed to Chinese creditors, who helped finance a spending splurge that ended in a crisis under PF – UPND’s predecessor. 

“What we don’t intend to do is to cross-subsidise – one debt stockholder paying a higher price, if you want to put it that way, or having better terms and another having worse terms,” President Hichilema said. “One creditor being of Chinese origin or another origin is not much of the issue here. It’s to make sure we come out of the problem.”

Whichever way you look at it, President Hichilema’s sentiments on resolving the external debt crisis were pretty brazen. He won an election landslide against ex-President Lungu last year, but has insisted that he inherited a near-empty treasury after years of corruption. His newly-elected government in December secured a deal in principle with the IMF that it hopes would anchor talks with creditors. Zambia’s US$3bn dollar bonds have been in default since it skipped interest payments in 2020.

Chinese creditors agreed to freeze interest payments on their loans even as international bondholders refused to agree to a suspension. But private investors wonder if their Chinese counterparts would take actual losses on their debts – or enforce 

their claims using what analysts suggest are often unusually strict contract clauses. Zambia needs to squeeze as much relief as possible out of creditors because the IMF bailout is likely to impose tough targets on finances at the same time as the newly-elected government is promising to protect spending on social services. This year’s budget aims to reduce the deficit from 10 percent to 6.7 percent of GDP and to deliver surpluses in the years after.

“We are working on ensuring that we have a common framework in dealing with this debt challenge” including recent meetings, President Hichilema said of the talks with creditors. “We are working with Chinese colleagues to make sure they are part of the common framework.” President Hichilema also pledged to recover assets allegedly looted under the previous government, but progress has been slow. “You will see progress very soon and we are already making progress,” he assured. But ex-President Lungu denies any wrongdoing.

In late January, Zambian civil society groups criticised “recent governance breaches” under President Hichilema’s government, including the police giving an official warning to a privately-owned TV station that broadcast a critical story involving the President’s political 

adviser. His government is yet to repeal cyber security and public order laws that were used to repress the opposition under his predecessor. They would be looked at in parliament soon, he promised. But President Hichilema explained that compared with the crackdown under ex-President Lungu, civil society’s freedom to criticise him was “good – it’s not a bad thing”. He added: “We have created those opportunities – for criticism – that were not there just six months ago.”

He said this, whilst campaigning in the just-ended Kabwata Constituency parliamentary by-election following the death of the late UPND lawmaker, Levy Mkandawire as his party sought its parliamentary seat’s retention. Ultimately if President Hichilema’s self-hyped policies have failed to translate into political freedom and a better quality of life for ordinary Zambians all UPND’s self-praise is meaningless. It’s God that judges by intentions. Human beings judge by actions. Predictably though, the outcome of the just-ended by-election – albeit characterised by low voter-turnout as the UPND candidate narrowly emerged victorious, which clearly confirmed that managing power is more difficult than capturing power. Most Zambian political leaders ride into office on a popular vote and depart on a stretcher of disappointment and condemnation. Opposition elements and those new to power in the country would do well to remember this. 

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