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China extends debt repayment to Zambia (but not its banks)
The US$ 4.1 billion deal reached last week in Paris does not include private banks, in which the Beijing holds a majority stake. According to Chatham House, the debt of African countries has increased fivefold from 2000 to 2020, with 12 per cent held by Chinese banks. Meanwhile, Sri Lanka is asking creditors for a 30 per cent cut, a demand always rejected by Beijing.
Milan (AsiaNews/Agencies) – Zambia successfully renegotiated its debt with Chinese lenders, but many question marks remain about the future of African countries heavily indebted to China.
The southern African country reached an agreement to restructure its US$ 6.3 billion with other countries during the Summit for a new Global Financial Pact held in Paris (France) last week.
The Zambia case has long been considered a significant test for all of Africa.
According to a study published earlier this year by Chatham House, 22 African countries are struggling to repay their debts or at a high risk of sliding into that situation.
Chinese lenders account for 12 per cent of Africa's public and private external debt, which rose more than fivefold between 2000 and 2020 to US$ 696 billion.
In 2020, Zambia was the first African country to default on its external debt due to COVID-19 and immediately applied for debt relief.
But it took nearly three years of negotiations to strike a deal at least on bilateral debt, with the World Bank and the International Monetary Fund repeatedly chiding China for the slow progress.
Eventually, China agreed to restructure US$ 4.1 billion of Zambia’s debt, with France, Britain, South Africa, Israel, and India providing the rest. However, Beijing achieved two important results at the negotiating table.
First, Zambia has not been granted any debt relief, but only more time, reorganising its debt over 20 years with a three-year grace period. This is China’s usual modus operandi when it comes to indebted countries.
For Zambia’s Secretary to the Treasury Felix Nkulukusa, the only debt that involves China directly is the part owed to the Export-Import Bank of China.
Yet, Zambia has another US$ 1.7 billion in debts to two large Chinese banks – the Industrial & Commercial Bank of China and the Bank of China – which, although formally private banks, have the Chinese state as their largest shareholder.
In addition, Zambia owes at least 4.5 billion dollars to private creditors with whom negotiations have not yet started. This is a crucial point since the interest rates on private debt are usually higher than on debt contracted with other countries or international institutions.
In fact, billions are “still owed to big banks and hedge funds, the private lenders who if paid in full could make up to 250 per cent profit on Zambia’s debt,” this according to the Debt Justice campaign reacting a few days ago to the Paris summit.
Meanwhile, in Sri Lanka, another country in deep economic crisis and heavily exposed to China, the Governor of the central bank Nandalal Weerasinghe has asked foreign investors in its international sovereign bonds to take a 30 per cent cut, while seeking similar concessions from holders of its other dollar-denominated bonds.
So far, China has rejected this proposal, accepting only to extend the maturity of debt owed.
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