China, the biggest bilateral creditor to developing countries, needs to show it can operate within established international debt-relief processes for poor nations such as Zambia struggling to pay, the chief of the International Monetary Fund said.
(Bloomberg) — China, the biggest bilateral creditor to developing countries, needs to show it can operate within established international debt-relief processes for poor nations such as Zambia struggling to pay, the chief of the International Monetary Fund said.
“China has been very slow to recognize that multilateral debt restructuring requires China to play by the rules that are already established,” Managing Director Kristalina Georgieva said in a Bloomberg Television interview with Tom Keene Thursday. “Now is the time for China to demonstrate that they are capable of playing by these rules.”
Georgieva said that she’s confident China will participate in restructuring for Zambia, which for more than two years has been in talks to rework $12.8 billion of external loans from Africa’s first pandemic-era sovereign default. But the fund may need to consider other options for disbursing funds if it continues to hold out in coming weeks, she said.
The Paris Club of mostly western traditional creditor nations joined with newer lenders China, India and Saudi Arabia in late 2020 to agree to a roadmap called the Common Framework to restructure debt from poor countries on a case-by-case basis. But the process has been plagued by delays, and Beijing has been reluctant to grant relief.
Last month, Georgieva was in China, where she said the world urgently needs faster and more efficient processes for restructuring debts of vulnerable countries.
While she said that China’s engagement in the Common Framework to reorganize debt and the Global Sovereign Debt Roundtable are “very much welcome,” a number of western nations including the US, the IMF’s largest shareholder, have accused Beijing of dragging its feet in providing relief.
The issue is set to feature prominently at the IMF and World Bank Spring Meetings next week.
China has prevented progress on debt talks for Zambia — which is participating in the Common Framework — with its call for loans from multilateral development banks and domestic creditors to be included in the country’s restructuring. The US and other countries have rejected such proposals.
For Zambia, “I got the assurances from the Chinese premier that China would play its role,” Georgieva said.
For the southern African nation, “Plan A is get the creditors to do what is expected from them,” Georgieva said in a follow-up after her TV interview. “I would not rest until they do. I’m going to pursue the creditors until they deliver.”
“We expect that the resolution of debt for Zambia will be achieved,” Georgieva said in an interview on Thursday. “If over the next weeks we are still not getting to that resolution, we have to look at other options,” she said.
Georgieva spoke after IMF staff earlier on Thursday announced completion of its review of Zambia’s $1.3-billion loan program.
Ordinarily, Zambia would need official creditors led by China and France to agree to a debt-relief deal before the IMF board signs off on the next disbursement of funding of about $188 million for a country where restructuring delays have already knocked its currency and fanned inflation.
But analysts have raised the possibility of the IMF invoking a rarely used policy on lending into official arrears to consider Zambia’s disbursement because a restrucutring deal from the official creditors committee that China co-chairs is the only prerequisite missing.
The provision is aimed at preventing a creditor from blocking assistance to a country in dire need of financing and has shown commitment to meet loan conditions.
The IMF can use the policy on lending into official arrears if it deems prompt financial support is essential and sees the country pursuing appropriate policies and making good-faith efforts to reach an agreement with creditors.
But Georgieva made clear that the preference is for China to agree to relief.
“We need to remember that lending into arrears doesn’t reduce the debt,” she said. “It only postpones it. It’s much better to stick to Plan A.”
(Updates with comments from Georgieva in third paragraph.)
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