Chinese relief pledge for Zambia may set example for other indebted African nations

Zambia accumulated an unsustainable debt burden largely because of excessive spending on infrastructure projects funded by China and other creditors

Governments may consider postponing or cancelling non-priority projects and focus spending on things that will promote growth and cut poverty, says an economist

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Zambian president Hakainde Hichilema (third from right) tours the Kafue Bulk Water Supply Project in Lusaka Province, which was financed by the Export-Import Bank of China. Photo: Xinhua

Published: 9:00pm, 7 Aug 2022

China’s promise to provide debt relief for Zambia is being watched closely as it could set a costly precedent in other heavily indebted countries elsewhere, observers say.

Last week, Zambia’s official creditor committee, co-chaired by China and France, provided “financing assurances” that pave the way for the much-needed US$1.4 billion bailout by the International Monetary Fund (IMF).

Analysts at the London-based investment research firm Tellimer say China’s move could “indirectly set a precedent for how China could work with other lenders to tackle the threat of a wave of defaults across emerging markets”.

“China is a significant lender to Africa and, as such, has massive exposure to debt in Africa and wouldn’t want to risk a broad-based fiscal crisis. Therefore, the Zambian debt restructuring will be watched closely as it will set an example for many highly indebted African countries,” Tellimer said.

Last week, Zambia cancelled US$1.6 billion worth of undisbursed loans from Chinese lenders out of a total US$2 billion from external creditors. It also suspended related projects as part of measures undertaken by Lusaka to stabilise the country’s macroeconomic situation and to comply with IMF conditions.

Tim Zajontz, a research fellow at the Centre for International and Comparative Politics at Stellenbosch University, South Africa, said that non-disbursement of Chinese loans was not unique to Zambia but had become an increasingly common practice by Chinese lenders in debt-distressed countries.