Geopolitics drives Zambia’s debt
The government mismanaged the country’s finances, but the West presents China as the new African coloniser
On 13 November, Zambia became the first African nation in the Covid era to default on its external debt payments. The default was triggered by the inability of the government to arrive at an agreement with holders of $3-billion of its external bonds (so-called Eurobonds). The government asked for a six-month extension in interest payments due a month ago — a request turned down by its bondholders.
After having much of its external debt written off in the mid 2000s as part of the heavily indebted poor countries initiative, Zambia began to accumulate new debt in 2012. The new debt cycle was facilitated by the country getting a sovereign debt rating in 2011 from ratings agency Fitch, which at the time considered Zambia to have a “stable” outlook regarding the risk of default.
Dollars began to flow into Zambia, heralding the era of the international financialisation of the country. In September 2012, Zambia issued its first Eurobond, worth $750-million, to much fanfare on Wall Street. This bond issuance was so oversubscribed that two additional bonds totalling $2.25-billion were issued in 2014 and 2015 bringing the total bond outstanding to $3-billion.
Zambia has, over the past two years
featured prominently in international debates concerning its level of indebtedness. What is inexcusable is the government’s reckless accumulation of external debt, which has increased by more than 1 000% since 2011.
Most Zambians agree there is little to show for this debt except for an economy teetering on the brink. What is also inexcusable is how reckless, ideological and dishonest much of the international debate has been. It has proceeded as if its ultimate goal was to force Zambia into debt distress.
For starters, the subject of the actual level of debt has been hotly debated in the Western press. In 2018, the London- based Africa Confidential, that anonymously publishes whistleblower-type reports on the African continent, ran a series of articles claiming that Zambia was hiding the true amount of its debt and that the actual number had reached 100% of the country’s gross domestic product (GDP).
Given the size of the country’s GDP in 2018, Africa Confidential was suggesting that the government owed
$27-billion, an implausibly large amount that has since been shown to be false. Africa Confidential is yet to issue a retraction.
Second, many in the Western media and governments as well as international multilateral agencies blame China for Zambia’s debt. The Financial Times ran an editorial in October effectively blaming China. The Economist has also pushed this line and so has the United States government and the International Monetary Fund (IMF). The IMF has made the restructuring of Chinese debt a precondition for balance of payments support to Zambia.
To be sure, Zambia has borrowed from China. According to the finance ministry, the country owes about $3-billion to China. But the lion’s share of Zambia’s debt stock is owed to Western and Western allied institutions. World Bank data shows that of the $11-billion the government owed creditors at the end of 2019, most of it (about 70%) was owed to entities allied to or headquartered in the West. These include the World
Bank and the IMF as well as commercial banks and hedge funds.
Only China and (reluctantly) the World Bank and IMF gave Zambia some debt relief this year. Banks and hedge funds, which together hold about $5-billion (or 50%) of Zambia’s external debt, have not batted an eye. Remember, Zambia’s debt started with the issuance of Eurobonds in 2012 that were swept up by Western banks and hedge funds.
Another angle to the China story concerns misleading reports about the pledging of vital national assets as collateral in exchange for Chinese debt. Africa Confidential published a report in 2018 claiming that the national electricity utility, Zesco, was about to be taken over by China because it had been pledged as collateral. This story, too, has been refuted by the Chinese and Zambian governments but not without the story growing its own legs and the false list of pledged national assets extending to include the national broadcaster and the national airport. China wants to win friends on the African continent and grabbing sovereign assets is not the way to do it. Beijing knows better than to do that.
Zambia’s debt is concerning and is largely a result of the government’s careless stewardship of the nation’s finances. But that is not the only lesson to draw from this situation. The country is being used as fodder in a geopolitical battle between the West and China. The West, worried about its waning influence on the continent, is spinning a narrative that doing business with China is fatal. Caught in the middle are the lives of Zambians who are the proverbial grass in the big ideological tussle.