Zambia’s debt restructuring limps over line as painful test case

More than three-and-a-half years, or 1 300 days, after resource-rich Zambia formally declared itself bankrupt, it is about to drag itself out of default, leaving some hard lessons for richer nations about how their much-vaunted debt-relief plan performed.

Last Tuesday saw its international bondholders vote through their part of a US$13.4 billion debt restructuring and make Zambia the first to complete a full-blown rework under the G20-led 'common framework' architecture.

Hakainde Hichilema, Zambia's president, has described it as a historic moment and the head of the International Monetary Fund (IMF), Kristalina Georgieva, has hailed it as an important sign of multilateral cooperation.

But for many involved in the day-to-day work - and repeated delays - it will be more of a weary cheer than a celebratory fist shake.

"It was painful for Zambia - we fully recognise that," William Roos, the co-chair of both the 'Paris Club' of richer Western creditor nations and of Zambia's Official Creditor Committee that included Zambia's biggest lender China, said at a Finance for Development Lab debt conference in Paris on Friday. "So we have to improve. But we delivered."

Delays and complexity

The overall restructuring is estimated to cut around US$900 million dollars from Zambia's debt and spread its future payments over a much longer time frame. It has been its role as a common framework guinea pig, though, that has made it prominent.

Launched during Covid-19 in 2020, the framework was designed to bring all the different lenders to poorer countries under one roof - particularly China whose lending exploded in the decade before the pandemic.

It was regarded as a breakthrough but the extraordinary length of time Zambia's restructuring has taken, as well as others still ongoing in Ghana and Ethiopia, has led to criticism of delays and complexity.

Officials and creditors in all three countries have complained about a lack of transparency.

Masitala Mushinga, director of debt management at Zambia's ministry of finance, said they were confident and relaxed at the beginning of the process – but quickly found themselves caught between the likes of China, its biggest creditor, and bondholders who did not agree on what constituted "comparable" debt relief.

One of Zambia's legal advisers, Melissa Butler at law firm White & Case, also noted how China was singled out for criticism. "There was a lot of finger pointing [at China] in the early days that was somewhat unfair, because there was a learning process going on," Butler said.

"They have demonstrated that they want to engage with the rest of the international community, and in Zambia, they delivered. That, to me, is the real win here".

China's foreign ministry spokesman Wang Wenbin told a regular briefing on Friday that Beijing's efforts had been "highly appreciated" by all sides and that it would "continue to coordinate and cooperate with all parties concerned".

The IMF concluded its review of Zambia's extended credit facility (ECF) on Tuesday - and Zambia also asked to boost that US$1.3 billion loan programme to US$1.7 billion to help it respond to the country's worst drought in 40 years.

But will getting its restructuring over the line clear the path for the next common framework default, wherever it crops up?

- Reuters