Why Zambia’s Eurobond Default Raises Questions About Its China Debt

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Credit: Johanneke Kroesbergen-Kamps

As the coronavirus pandemic cripples economies of many African countries, defaulting on debts owed to global financial institutions, private lenders, and other development partners are almost becoming unavoidable. 

Recently, Zambia has become the first country to default on almost $120m in Eurobond repayments. According to African Business, on Tuesday, President Edgar Lungu told bondholders there would be delays in the repayment of interest on three of its Eurobonds, totaling $3bn, until next year. This development in Zambia has reignited fears over an eventual debt crisis on the continent and Beijing’s role. 

According to African Business, Elling Tjønneland, a senior researcher at CHR Michelsen Institute (CMI), stated that “the whole crisis that we are witnessing poses a number of new challenges for China’s role in Africa…China will now have to work with multinational lenders to Africa like the World Bank to find sustainable solutions to the crisis.”

Tjønneland is further reported to have predicted that “quite a number of African countries are not in a position to service their debts. For China, it is not going to be possible to find solutions to the debt crisis for countries like Zambia without the traditional lending agencies and the multilateral development finance institutions and countries like China finding common ground.”

Zambia’s government debt stood at $11. 1bn (88% of GDP) in 2019, and as a result of this, 44% is estimated to be owed to China. The government blamed a combination of declining revenues and increased unbudgeted costs caused by the COVID-19 pandemic.

Research on Zambia’s national debt remarked that “Zambia’s growing external debt has resulted in a “high” risk of debt distress only 12 years after receiving full debt relief under the HIPC scheme. Since 2012, Zambia has borrowed extensively. The primary lending sources have been the Eurobond market and Chinese creditors, but Zambia has also borrowed from other non-traditional and commercial sources.”

The 2019 research articles also emphasized that “The Zambian government must take full responsibility for the debt crisis as they have received ample warnings against the increasing debt burden from its own economists and opposition, as well as from external advisers, the IMF, World Bank, and donors.”

Like Zambia, other African countries risk falling into the same situation, experts say. “Countries on the list of African nations with unsustainable debt loads, like Mozambique and Angola, risk being next in the wave of defaults expected to hit the continent… for all these countries with falling exports, prices and raw materials and all that goes with it, the future looks gloomy for the next couple of years.” Tjønneland hinted. 

What Can China Do? Of Africa’s total debt, it is estimated that China alone commands an impressive 20 percent, making China, one of Africa’s most important lenders. The G20’s Debt service suspension initiative (DSSI), some have argued is one good avenue for Beijing to work with other international financial institutions to help with Africa’s economic recovery strategies. In an article published on Africans on China website, the author urged that “China must be transparent with its case-by-case debt relief program. This is because debt relief that private creditors may grant African countries may depend on the terms of Chinese debt relief. More favorable Chinese debt relief terms may lead to terms that are more favorable from private lenders.”

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