( 3 minutes read)
- The Zambian Civil Society Debt Alliance and Jubilee Debt Campaign UK say that external private lenders and other governments should cancel at least two-thirds of Zambia’s debt.
- In order to make the debt of the southern African country sustainable, the civil society campaigners say that a large scale debt write off is needed
- Zambia is negotiating restructuring of its debt with private and government creditors through the G20’s new Common Framework
The Zambian Civil Society Debt Alliance and Jubilee Debt Campaign UK say that external private lenders and other governments should cancel at least two-thirds of Zambia’s debt, to bail out the country from the debt trap. In order to make the debt of the southern African country sustainable, the civil society campaigners say that a large scale debt write off is needed.
Presently, the new elected government of Zambia is negotiating restructuring of its debt with private and government creditors through the G20’s new Common Framework. Zambia’s success in restructuring debt can be a role model for other African countries, which are heavily indebted to external agencies particularly to private lenders and China. The cumulative Impact of the debt has made most of the economies vulnerable, despite some of them having oil wealth and other minerals in abundance.
For instance, the debt burden in Zambia is increasing poverty, preventing the country from tackling and recovering from the pandemic and dealing with crises caused like climate change. The campaigners also maintain that private lenders and other governments lend to Zambia and similar countries at high interest rates on the plea that there is high risk in lending to countries with risky repayment capacities.
Internationally, Zambia’s debt has been bought and sold at 30 to 70 per cent below face value on financial markets. This a practice followed in the financial world. These high interest loans should never have been lent in the first place by the rich lenders. It is crass commercialization to charge such huge interest rates on the basis of covering high risk involved in lending to countries, which do not have repayment capacity. Upon private lenders refusing to write off the debt, the IMF and G20 governments should politically and financially support Zambia to stay in default on them, the campaigners demand.
It may be recalled that Zambia defaulted on interest payments to foreign currency bondholders in November 2020. The country then applied for a debt restructuring through the G20 Common Framework in February 2021.The G20 Common Framework allows for cancellation of debt to reduce debt burden to a sustainable level by G20 governments. But the overriding condition is that private lenders agree to write off at least the same amount of debt cancellation. The G20 makes the sustainable analysis of the debt sustainability of indebted countries based on the feedback from the IMF.
According to the IMF, Zambia’s external debt payments need to be around 12% of government revenue. Based on this, the Zambian Civil Society Debt Alliance and Jubilee Debt Campaign UK have calculated that two-thirds of the external debt owed to private lenders and other governments needs to be cancelled, as well as all interest payments. An analysis into Zambia’s external debt reveals that 46% is owed to private lenders, 22% to China, 8% to other governments and 18% to multilateral institutions.
The debt to multilateral institutions is not included within the Common Framework debt restructuring. The average interest rate on each creditor group is:6.1% external private lenders; 3.1% China, 4.8% other governments and 1% multilateral. The debt to the multilateral organizations is not included in the Common Framework Debt Restructuring exercise.
