Zambia’s debt restructuring is being delayed by requests from China to have the southern African nation’s local-currency debt held by foreigners included in a deal that could set a global precedent, according to a senior US Treasury official.
(Bloomberg) — Zambia’s debt restructuring is being delayed by requests from China to have the southern African nation’s local-currency debt held by foreigners included in a deal that could set a global precedent, according to a senior US Treasury official.
China, whose creditors hold more than a third of Zambia’s dollar debt, has repeatedly been blamed for holding up progress in the revamp of debt owed by Africa’s first pandemic-era sovereign defaulter, whose external liabilities topped $17 billion.
China’s latest curve ball is a further setback to the talks that have pitted it — now the biggest official lender to the developing world — against the US, the largest shareholder in the International Monetary Fund and the World Bank that are crucial referees in sovereign restructuring.
Reworking local-currency debt isn’t feasible and would leave Zambia with a more unaffordable burden down the line, the Treasury official said on condition of anonymity. When the southern African nation defaulted in 2020, it said it would only restructure external debts. The IMF warned last year that a revamp of local-currency obligations could trigger significant financial instability.
The Chinese embassy in Lusaka, Zambia’s capital, denied it has delayed the talks and urged the US to stop sabotaging other nations’ efforts to solve their debt issues, without providing further details.
“China has been active in co-chairing Zambia’s official creditors’ committee under the G-20 Common Framework and working hard with other parties to seek a sustainable solution in line with the principle of common actions and fair burden-sharing,” the embassy said in a statement responding to questions. “China’s efforts have made some positive progress.”
Beijing also wants multilateral development banks to take losses in restructurings, including in Zambia’s, the official said.
Forcing lenders such as the IMF and World Bank that offer concessional loans to participate in debt treatments would undermine their standing and ability to continue their work, the person said.
No Consensus
Chinese lenders haven’t reached consensus on accepting an upfront haircut in the debt-restructuring talks with Zambia, IMF Managing Director Kristalina Georgieva said in a speech in Lusaka Tuesday.
“China thinks of itself as a country that is still having quite a lot of development challenges itself and it is lending to other countries with the objective to help them develop,” she said. “It is difficult for the Chinese senior leadership to turn to the Chinese people that are currently experiencing a tough time and say we are not going to reduce your municipality’s debt but we are going to reduce the debt of Zambia.”
She said Chinese creditors have reached an understanding in principle that they will “de facto” accept net present value reductions on what’s owed “on the basis of significant stretching of maturities and reduction of interest payments, or kind of freezing interest payments.”
–With assistance from Taonga Clifford Mitimingi.
(Updates with comment from IMF chief in ninth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.