‘Guinea Pig’ Zambia warns of disaster if G-20 debt relief fails
Zambian President Hakainde Hichilema said his country is a “guinea pig” for a Group of 20 plan to help poor countries restructure unaffordable debts and that failure to win relief would mean disaster for others needing help.
The southern African nation signed up to use the so-called Common Framework to restructure its debts three years ago, after becoming the continent’s first pandemic-era sovereign defaulter in November 2020. Progress has been painfully slow, and hit a deadlock when official lenders rejected a deal with bondholders, saying the commercial creditors needed to take a bigger loss.
Ghana and Ethiopia have since also applied to revamp their borrowings using the Common Framework — which brings the traditional Paris Club of mostly rich-country creditors together with new large lenders like China for negotiations. Under the process, commercial creditors like bondholders are required to provide relief comparable to bilateral lenders.
“Zambia is being used as a guinea pig. We’re more or less the first ones that the world — especially the developing world — is waiting to see concluded,” Hichilema told diplomats Friday at a meeting in Lusaka, the nation’s capital. “When we don’t conclude it, it sends a negative signal into our own domestic market, into the developing countries — the global south — that maybe the global system is not working.”
The delays have already taken a heavy toll on Zambia’s economy. Its currency, the kwacha, has lost more than one-third of its value since its June 22 announcement of a deal-in-principle with bilateral creditors co-led by China and France, making it Africa’s second-worst performer over the period. The annual inflation rate is near a two-year high, jumping to 13.2% in January.
So far, no country has won relief through the G-20’s Common Framework, created in 2020 to help poor countries reorganize debts in the wake of the pandemi, but Zambia’s is the most advanced case. The framework has made progress, albeit slowly, according to Ceyla Pazarbasioglu, director at the International Monetary Fund’s strategy, policy and review department.
“It needs to be more predictable, more timely,” she said in comments streamed via the fund’s website Jan. 25. “Much more needs to be done.”
The Zambian government is seeking to restructure $6.3 billion in bilateral debt. While it reached a memorandum of understanding with the official creditor committee in October, “one or two” nations are yet to sign the deal, Hichilema said, without naming them. In addition to other commercial loans, Zambia is also in talks to revamp $3 billion in eurobonds. That total debt had grown to $3.62 billion by June, including interest while in default.
Hichilema, whose speech was broadcast over state television Friday, made a plea to diplomats for their governments to accelerate their work to ensure Zambia’s debt-restructuring efforts succeed. He warned of consequences to the Common Framework if it doesn’t.
“If it fails, it means the global system is failing,” he said. “We can never allow the global system to fail. It will be disaster.”
