Zambia had debt problems before the outbreak of COVID-19, but the country’s economic crisis completely broke out in 2020. Since then, the debt issue has become a vital issue in Zambia’s domestic politics.

In August 2021, President Hakainde Hichilema assumed office. Since his Presidency,  sovereign debt restructuring has become a priority for the incumbent government.

There are two perspectives on whether Zambia can make progress in sovereign debt restructuring.

The first one is about the domestic situation and economic development potential. At the same time, the other one is about action taken by the government and creditors until now.

Hakainde Hichilema
Hakainde Hichilema, the incumbent President of Zambia.
What is Zambia’s current debt situation?

The outbreak of COVID-19 deteriorated Zambia’s economic situation, and the fiscal deficit has continued to expand. Since the country became the first country to default on its sovereign debt during the epidemic in November 2020, its dilemma of high debt has not eased.

According to the latest figures from Zambia’s Ministry of Finance, the country’s total external debt has approached $26.07 billion.

According to data from the Bank of Zambia, Zambia’s government debt ratio to GDP has approached the red line of 100% in 2018 and 2019 (91.9% in 2019).

During the epidemic, Zambia’s government debt ratio to GDP has increased significantly, which is 140.2% in 2020 and 123.2% in 2021.

Zambia’s external debt contains three parts. The private sovereign debt accounts for nearly 45%. At the same time, the bilateral sovereign debt accounts for 30% (of which 22% is debt to China).

Besides, the multilateral institutions’ debt accounts for about 25%. Regarding private sovereign debt, it is worth noting that creditors are highly dispersed and have strong market profit motives.

For bilateral sovereign debt, China is Zambia’s largest lender. Zambia owes more than $6 billion to China, accounting for one-third of its bilateral foreign debt.

Moreover, Zambia’s other creditors for bilateral sovereign debt include South Africa, India, Russia, and other Western countries.

To talk about multilateral sovereign debt, according to the data from Zambia’s Ministry of Finance, until June 2021, Zambia’s main creditors include the African Development Fund (about 500 million USD), the African Development Bank (about 240 million USD), the European Investment Bank (about 176 million USD), the African Export-Import Bank, the Arab Bank for Economic Development in Africa, and so on.

In addition, the World Bank (WB) and the International Monetary Fund (IMF) are also playing significant roles in this context.

Can Zambia’s own Economic Development ease its Sovereign Debt Crisis?

At present, with the growing vaccination rate and industrial resumption, Zambia’s domestic economic growth has the potential to improve slightly.

But it is almost impossible for Zambia to only rely on its economic recovery to emerge from its debt woes. The following are the three main reasons why Zambia can’t rely on its solvency to eliminate the sovereign debt crisis.

1. First, the financial deficit of the Zambian government remains tight

Expenditures such as epidemic prevention, unemployment, and securing industrial recovery squeeze public fiscal space. Overall speaking, Zambia’s national economy has been weak since 2015.

The national economy grew at just 1.9% in 2019 and fell to -2.5% in 2020 after the outbreak of COVID-19. At the end of 2021, Situmbeko Musokotwane, Zambia’s Finance Minister, said the government’s 2022 national economic growth target is at least 3.5%, which is just slightly higher than 3.3% 2021.

The Effect of the outbreak of the COVID-19 on Zambia’s GDP Growth (Quarterly Growth) in 2020, compared with 2019.

Meanwhile, the government aims to reduce the national budget deficit from 10.4% of GDP in 2021 to no more than 6.7% in 2022. In terms of employment, the unemployment rate in Zambia in 2021 increased slightly compared with 2020, reaching about 13%.

World Bank’s data shows that 17.13% of the country’s population has been vaccinated for at least one dose. At the same time, as the global supply chain is still unstable, the country’s manufacturing output has dropped sharply.

Furthermore, the epidemic prevention and control policies have weakened private consumption and investment. Simultaneously, the pandemic has deeply affected the service and tourism industries.

2. Second, the recovery process of Zambia’s pillar industries is slow, and international investment has not yet fully recovered.

Copper has long been the mainstay of the country’s economy. But the mining industry has been influenced by pandemic-related supply chain disruptions and excessive rainfall.

Accordingly, the slow recovery cannot guarantee the scale of output and export. Also, high taxes and high collection rates have led most foreign investors to remain on the sidelines.

However, Zambia’s economic development in 2022 is built on high copper prices, increased market confidence after elections, and a continued recovery in agriculture.

3. Third, the stability of Zambia’s financial industry remains to be seen.

Zambian bonds fell to half their value after Zambia’s announcement that it had defaulted on its sovereign debt. With government bonds accounting for 30% of Zambia’s banking sector revenue, the country’s financial stability remains at risk, with the depreciation of bonds negatively affecting banks’ balance sheets.

A picture of Zambia’s refined copper.
Debt Restructuring Under G20 Common Framework Needs More Efforts

Since the outbreak of the debt crisis, the Zambian government’s national debt resolution plan has mainly started by joining the Debt Service Suspension Initiative (DSSI), joining the G20 Common Framework (G20 CF) to establish an official creditor committee, negotiating with multilateral institutions, and reducing the domestic budget.

So far, the country has not made significant progress with private creditors. Therefore, negotiations mainly focus on multilateral institutions led by the IMF, World Bank, and other creditor governments in bilateral debt.

This article will mainly introduce how the G20 Common Framework works for Zambia in terms of its bilateral sovereign debt.

1. The Debt Service Suspension Initiative (DSSI)

First, between 2020 and 2021, the Zambian government sought major creditor countries for debt service deferrals within the Debt Service Suspension Initiative (DSSI).

China and member states of the Paris Club, including France, Japan, and the United Kingdom, all provided Zambia with support under the umbrella of DSSI. However, DSSI expired at the end of December 2021.

2. The G20 Common Framework (G20 CF)

Besides using DSSI, on February 5, 2021, the Zambian government announced its formal application to join the G20 Debt Service Common Framework (G20 CF). Thus, Zambia became one of the first three countries to join the G20 CF to seek a debt restructuring.

After the expiration of DSSI, the G20 CF and its subordinate platform became the primary mechanism for Zambia to carry out debt restructuring negotiations.

Establishing an Official Creditor Committee is the main negotiating clue for debt restructuring negotiations under the current G20 CF. France, South Africa, and China are playing crucial roles in establishing the Zambia Official Creditors Committee.

According to the latest news, in May 2022, China and France will co-chair the creditor committee. The committee’s establishment is expected to be completed by the end of June 2022.

Until now, it’s hard to foresee how the G20 CF can contribute to the debt restructuring in Zambia. The plan to design an Official Creditor Committee came out during a negotiation between the IMF and the Zambian government in December 2021.

But during the first five months in 2022, it is still on the way to the final establishment. Therefore, international opinion remains wait-and-see about the effectiveness of the G20 CF.

To sum up, the plight Zambia is facing includes the tight financial deficit of the government, the uncertain recovery process of national pillar industries, and the fragility of the country’s financial sector.

Whereas for sure, Zambia will not be able to get rid of its debt crisis without international collaboration. Therefore, the international reaction is becoming one of the determining factors in solving Zambia’s debt crisis.

Furthermore, international support and understanding from creditors will contribute to the solution of Zambia’s debt dilemma.

But also release the Zambian government’s pressure on key economic indexes like the economic growth rate and sovereign debt ratio to national GDP.

Appropriate international collaboration can also enhance the confidence of international investors. External investment can become a kind of impetus to accelerate Zambia’s economic cycle, significantly when Zambia is deeply affected by an unoptimistic credit rating globally.

Although difficulties in debt restructuring are not avoidable as Zambia’s creditors are fragmented and have complex interests, the future for Zambia’s sovereign debt restructuring could be bright if creditors can make the framework effective and practical with coordination.


*The writer is a Research Fellow at The Diplomatic Insight and Institute of Peace and Diplomatic Studies

*The views and opinions in this article are the writers’ own and do not necessarily reflect the views or positions of the institute

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