Will Zambia's Debt Restructuring Set a Precedent?

Last June, China signed a moratorium agreement with the African country after a long period of negotiations. The news was reported by French media, and it was made collaterally to an international summit being held in Paris.

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The novelty was that China renounced bilateral negotiations with Zambia and sat down to negotiate in a multilateral forum together with other lender states and private creditors.

On that date, the disagreements that characterized the framework of the negotiation of this agreement were also in the news, which put Western and Chinese creditors under tension. Zambia's debt in 2022 was $32.8 billion, of which $18.6 billion was owed to foreign creditors.

The agreements took much longer than expected and were fraught with tension and contradictions, but even so, the meeting was considered by the international press and experts as a successful experience. Zambian President Hakainde Hichilema, speaking at a parallel international summit, expressed his satisfaction with the agreement.

There was already a precedent of a previous negotiation on the restructuring of Chad’s debt, this time between G20 creditors, which had been described as a “slow process”, also due to discrepancies among creditors, and which had a limited scope compared to this last one.

Restructuring of Zambia’s debt includes bilateral loans contracted with States, which total 6,300 million dollars, 4,100 million of which were to China.

Many see this agreement as a change in China’s lending policy. The Chinese may be incorporating some aspects of Russia’s notion of the Global South, which promotes an economic future that relaxes basic notions of trade liberalism.

The negotiation, however, does not imply condemnation of the debt, but rather moratoriums and 20-year extensions, allowing Zambia to meet its payments without having to negatively impact the living conditions of its society, which is already in the midst of an economic crisis. Specifically, it is 5.6 billion euros owed to the state-owned Export–Import Bank of China (EXIM). Initially, payments are canceled for three years, after which the debt payment will be restructured as such, with ample margin for Zambia.

Researcher Yunnan Chen of the Overseas Development Institute, believes that it was becoming untenable for the Asian Giant to negotiate with each debtor country independently, “it was not working in the face of a systemic shock of so many actors involved”.

Another factor that may have motivated the Chinese to enter into multilateral negotiations is related to difficulties within the Chinese lending structure itself. These are very “dense” according to analyst Matthew Mingey. For this researcher, the fact that there are so many parties involved in the loans that China offers to countries in need makes it difficult to negotiate the reform of these debts.

There are also causes related to the geopolitical war between China itself and the United States, which transcend the negotiation spaces, limiting the scope of the reforms and their impact on the Third World.

In this sense, there is a division between experts who are optimistic about the restructuring of Zambia’s debt, and those who are more pessimistic and consider China’s turnaround in its traditional lending policy as a one-off reform that, although it could be repeated in the future, will not imply a change in the bilateral negotiation model.