By Tom Hancock
China wants multilateral development banks to offer debt relief to Zambia, something the World Bank has explicitly rejected and which will further complicate efforts to restructure the country’s borrowing.
The key to easing Zambia’s debt burden “lies in the participation of multilateral financial institutions and commercial creditors in the debt-relief efforts,” foreign ministry spokeswoman Mao Ning said in a briefing, adding that multilateral institutions and private creditors hold “the bulk” of Zambia’s foreign debt.
The remarks show China’s determination to reform the global system for restructuring sovereign debt, which has typically exempted lending by multilateral banks. That could raise tensions with the World Bank and extend already lengthy debt talks.
“China attaches high importance to Zambia’s debt issue,” Mao added. “We have played a constructive role in handling Zambia’s debt under the G-20 Common Framework,” she added, referring to the Group of 20’s initiative that brings together the Paris Club of traditional rich lender countries, private creditors and China to try to restructure the debts of low-income countries on a case-by-case basis.
World Bank President David Malpass last week rejected demands for the lender to offer debt relief as unfeasible.
“There’s not a mechanism to do that,” Malpass said of the lenders taking losses. “That’s been discussed actively at the G-20 and rejected as a direction, so I hope they’ll move on from that.”
While China, the world’s largest sovereign creditor to developing nations — wants multilateral development banks, known as MDBs, to take losses in restructurings, forcing lenders that offer concessional loans to participate in debt treatments would undermine their standing and ability to continue their work, a senior US Treasury official said last week.
In a declaration following their meeting in Bali, Indonesia, in November, Group of 20 leaders stressed the importance for private and official bilateral creditors to provide debt treatments on terms that ensure fair burden sharing.
They noted that one member “has divergent views on debt issues,” and that this country “emphasized the importance of debt treatment by multilateral creditors like MDBs.”
This might prove to be a sticking point as IMF Managing Director Kristalina Georgieva spearheads efforts to get creditors to agree on fixes to the Common Framework when G-20 finance ministers and central bankers meet in Bengaluru, India, February 23-25.
The Zambian debt talks are being closely watched as an example for how sovereign debt restructuring will work in an era in which China is the world’s largest sovereign lender and developing countries have issued dollar bonds to private owners.
In Zambia’s case, talks have been slow, without any agreement reached on debt relief almost two years after the country decided to restructure its debt under the Common Framework.
