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Zambia is working to resolve a USD 80 million payment error made by its state-owned power utility, Zesco Ltd., to China while finalizing a protracted debt restructuring agreement with the Asian country, stated Felix Nkulukusa, Secretary to the Treasury. The funds, derived from electricity sales collected in a securitized account tied to a Chinese-built and financed power plant, were mistakenly transferred.
The government has since proposed treating the payment as an advance on the interest accrued on Zambia’s debt to China since 2023. Zambia reached a memorandum of understanding with its official creditor committee, co-chaired by China and France, in October 2023 but has yet to sign a final deal with China. Finalising this agreement is essential for resuming debt payments.
This incident shows the challenges Zambia faces in restructuring its debt. Zambia stands out among African borrowers due to its exceptionally high level of Chinese loan commitments relative to the size of its economy and its total outstanding debt.
In 2020, Zambia became the first African country to default on its $42.5 million bond payment during the COVID-19 pandemic, a financial setback that has hindered its economic growth and stalled new development projects. Experts warn that prolonged debt crises of this nature can push nations further into poverty and unemployment while cutting them off from the credit needed to rebuild and recover.
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China is Zambia’s largest lender, accounting for over 40% of the country’s external debt. Zambia’s external debt has increased dramatically in recent years, particularly since 2012. As of April 30, 2024, China owns USD 5.5 billion of Zambia’s USD 17.3 billion debt, while the rest is owed to other rich countries and Western-dominated international institutions, including the development banks and the commercial Eurobond market.
