When we talk about Zambia these days, there is no way to avoid the elephant in the room: its debt. In 2020, Zambia became the first African country to declare bankruptcy (possibly worldwide) as the pandemic had brought it to its knees: the coffers were empty, and the country owed China, its main creditor, over $3 billion with no clear way to pay it back. This past Tuesday, the IMF announced that Zambia was seeking as much as $8.4 billion in debt relief in preparation for discussion on restructuring foreign liabilities. African debt as Thomas Sankara pointed a while back is a tricky subject… so there is already that fundamental question of debts owed to European countries (like France) which milk Africa via fake currencies such as the FCFA, and treacherous partnerships signed decades ago which benefited only the West. For today though, how did Zambia get here in the first place?
The country’s debts quadrupled between 2014 and 2019 amid a surge in infrastructure borrowing under Edgar Lungu, the former president, who lost elections last year to Hichilema. Needless to say that right before Lungu came into power, there had been a collaboration between Norway and Zambia to help the country get better hold of its revenues, via a mineral mining monitoring project aimed at boosting tax revenues. As we learned at the beginning of the week, Zambia is rich in minerals, particularly copper. However, upon arrival in power, president Lungu stopped the program (aimed at helping its country negotiate better deals for its mines), and went into an infrastructure shopping spree with no real regards for what was in his treasury’s coffers; no wonder he got the boots at the end of his first term. This, added to all previous debts, and the pandemic which hit just as the new president was getting into office, made for the perfect storm.
Excerpts below are from the Times talking about Zambia’s discussions this week, and hopefully the start of a better way to close on the debt. Let’s not veil ourselves though, since its creation has the IMF ever helped a single African country come out of problems? Hard to believe that it will – maybe the case of Zambia will be different? You can also read articles from Bloomberg, Atlantic Council, and Financial Times.
Not that long ago Chinese credit was easy to get in Zambia. A government department could contact a Beijing lender directly without needing to get it signed off by finance ministers.
Millions of dollars were squandered or used to line pockets. Ministers campaigned in helicopters and the president had a Gulfstream jet. All the while the debts were racking up. It could not last.
“We have lost an obscene amount of money on corruption — money that could have been used to feed, house, clothe and educate our children,” said Hakainde Hichilema, a man once mocked as “calculator boy” for his head for dry numbers.
A year after securing the presidency — at his sixth attempt — in a landslide, Hichilema is unpicking the ruinous rule of his predecessor, Edgar Lungu, who threatened to turn Zambia into the new Zimbabwe.
Under Lungu’s administration, international debt quadrupled to more than 120 per cent of Zambia’s GDP. He failed to negotiate a lifeline from the International Monetary Fund (IMF) after it became the first African state to default since the 2005 agreement to wipe clean the debts of 30 of the continent’s poorest states.
The $1.3 billion IMF bailout secured by Hichilema’s government last week was seen as a huge vote of confidence in his commitment to restraint and reform. A successful exit from default could make Zambia a model for other states in Africa, where China is the biggest lender and the threat of debt distress is high. China has overtaken the World Bank as the biggest foreign creditor to developing countries.
… Zambia’s debt of $6 billion to 18 different lenders was twice previous estimates.
… New laws on transparency and a cap on future borrowing will keep things honest, [Hichilema] said. “The only change we can probably say is that we have just raised the bar in terms of engagement.”