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On November 13, Zambia became the first African nation in the Covid era to default on its external debt. The default was caused by the inability of the government to reach an agreement with the holders of $ 3 billion of its external bonds (the so-called Eurobonds). The government was requesting a six-month extension on interest payments due a month ago, a request that was rejected by its bondholders.
After much of its external debt was written off in the mid-2000s as part of the Heavily Indebted Poor Countries Initiative, Zambia began to accumulate unsustainably new debt in 2012. The new debt cycle was facilitated by obtaining a sovereign debt rating by the country in 2011. The rating was granted by the international rating agency Fitch, which at that time considered that the country had a “stable” outlook regarding default risk.
With Fitch’s blessing assured, dollars began to flow into Zambia, ushering in the era of international financialization for the country. In September 2012, Zambia issued its first Eurobond worth $ 750 million to much fanfare on Wall Street. This bond issue was so underwritten that two additional bonds totaling $ 2.25 billion were issued in 2014 and 2015, bringing total outstanding bonds to $ 3 billion.
For the past two years, Zambia has featured prominently in international debates about its level of indebtedness. What is unforgivable is the government’s reckless accumulation of foreign debt, which has risen by more than 1,000% since 2011. Most Zambians agree that there is little to show of all this debt except an economy. that teeters on the edge of the abyss.
What is also inexcusable is how reckless, ideological, and dishonest that has been so much of the international debate. It has proceeded as if its ultimate goal was to force the country into a situation of over-indebtedness.
To begin with, the issue of the actual level of debt owed by Zambia has been hotly debated in the Western press. In 2018, the London-based company Africa confidential, which anonymously publishes whistleblower-type reports on the African continent, published a series of articles in which it claimed that Zambia was hiding the real amount of its external debt and that the real figure had reached 100% of gross domestic product (GDP ) from the country.
Given the size of the country’s GDP in 2018, Africa confidential he was suggesting that the Zambian government owed a total of $ 27 billion, an implausible amount that has since been proven false. Africa confidential However, it has yet to issue a retraction for its reckless coverage of 2018, coverage that has influenced how Zambia’s debt situation looks locally and abroad.
Second, many in the Western press and governments, as well as international multilateral agencies, blame China for Zambia’s debt problems. the Financial times published an editorial in October effectively blaming China. The Economist It has also promoted this line, as has the United States government and the International Monetary Fund (IMF). The IMF, behind the scenes, has made China’s debt restructuring a precondition for balance of payments support to the country.
Zambia has undoubtedly borrowed substantial sums from China. According to the finance ministry, the country owes about $ 3 billion to China (although there is some debate about the exact amount). But most of Zambia’s foreign debt is owed to Western institutions and Western allies. World Bank data shows that of the $ 11 billion that the government owed external creditors at the end of last year, the majority (about 70%) was owed to allied or Western-based entities. These include the World Bank, IMF, commercial banks, and hedge funds. Only China and (reluctantly) the World Bank and IMF have given Zambia some debt relief this year. Western commercial banks and hedge funds, which together hold about $ 5 billion (or 50%) of Zambia’s external debt, have not been fazed. It is worth remembering that Zambia’s debt problems began with the issuance of Eurobonds in 2012 that were swept away by Western banks and hedge funds.
Another angle in China’s story concerns misleading reports about Zambia promising vital national assets as collateral in exchange for Chinese debt. Africa confidential published a report in 2018 claiming that the national electricity company, Zesco, was about to be taken over by China because it had pledged as collateral. This story has also since been refuted by the governments of China and Zambia, but not without the story growing on its own and the bogus list of compromised national assets being extended to include the national broadcaster and the national airport. China wants to win friends across the African continent, but seizing sovereign assets is not the way to do it. Beijing knows that it should not do that.
Zambia’s current debt situation is worrisome and is largely the result of careless management of the nation’s finances by the government. But that is not the only lesson to be learned from this situation. The country is being used as fodder in a geopolitical battle between the West and China. The West, concerned about its diminishing influence on the African continent, is carefully crafting a narrative, with Zambia as ground zero, that doing business with China is fatal. The truth is much more complex than this narrative. And caught in the middle of it all are the lives of Zambians who have now become the proverbial herb in the great ideological struggle of our time.
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