China continues to lead debt relief efforts for Africa
CHINA has written down an undisclosed amount of Zimbabwe’s interestfree loans in line with its commitment to assist African countries that are buckling under the weight of heavy external debt.
The authorities in Zimbabwe and China have committed to clarifying the specifics of the loan write-offs and the modalities of future debt restructuring.
In 2022, China announced that it was forgiving 23 loans for 17 African countries desperately buckling under huge amounts of external debt. At the time of the announcement by President Xi Jinping, it was a muchcherished norm for Beijing’s foreign policy to help African nations hit by Covid-19 and global economic difficulties in their recovery efforts to stabilise their economies and improve living conditions.
Since 2000, China has made debt relief a norm, offering much-needed relief to countries in sub-Saharan Africa facing serious challenges in attracting new credit lines and foreign investment, while providing unconditional no strings attached economic support and aid.
Washington and Brussels have long accused Beijing of practising debt-trap diplomacy, suggesting that China deliberately lends to countries that it knows cannot repay the money, thereby increasing its political leverage.
However, there are suggestions that much of the external debt in African countries is owed to Western multilateral and bilateral institutions. And despite calls by African leaders for some respite, Western institutions, including at the level of G20, have been extremely slow and/or hamstrung in geopolitical manoeuvres.
China has emerged as the biggest investment and development partner with Zimbabwe, as with many other African countries.
Zimbabwe has forged unique ties with Beijing, its most important partner since the imposition of Western sanctions in the early 2000s.
The late former president Robert Mugabe launched the “Look East policy” to insulate the country from Western sanctions, consolidating closer relations with Beijing beyond the liberation struggle solidarity and assistance during the anti-colonial armed struggle of the 1970s.
The waiver of the portion of the debt Zimbabwe owes to China may not be adequate to resolve the country’s debt crisis, but it will provide much-needed relief as Harare continues with efforts to alleviate more than two decades of economic and financial distress which culminated in huge amounts of external debt.
The Mnangagwa administration, in power since 2017, has struggled with a heavy external debt burden amid efforts to resolve the country’s economic crisis of more than two decades.
In December 2022, the Zimbabwean government established a Structured Dialogue Platform with all its creditors and development partners, led by the African Development Bank (AfDB), to push for a debt restructuring deal with its major creditors based on institutionalised structured dialogue on economic and governance reforms, and co-ordinated efforts to clear debt arrears, paving the way for a debt resolution process.
In August last year, Zimbabwe’s Ministry of Finance told the media that the country planned to clear its foreign debt by the end of 2025.
However, a combination of political and economic challenges have continuously stalled this plan, further aggravating the country’s domestic economic turmoil.
Zimbabwe’s debt situation has been dire, with publicly guaranteed debt reaching $17.7 billion as of September last year. This amount comprises $12.7bn in external debt and $5bn domestically.
Officials in Harare suggest that the country could be owing as much as $2.03bn to China, or other entities from the country, which was mostly used for infrastructure.
Zimbabwe owes money to such international financial institutions as the European Investment Bank, China Eximbank, the Paris Club and Sinosure. It’s central bank reportedly racked up a debt of $4bn from banks and companies that relate to the supply of food, fuel and social services.
A debt bulletin released by Zimbabwe’s Treasury says that $2.7bn of Zimbabwe’s multilateral debt was borrowed from lenders such as the International Monetary Fund (IMF), the World Bank and the African Development Bank (AfDB), of which $2.47bn is arrears and penalties accrued from failure to service the country’s debt obligations. About $5.89bn is bilateral debt – owed to other countries.
Since 2000, Zimbabwe has faced serious political and economic crises as Western countries imposed sanctions which strangled its ability to attract much-needed foreign credit and new investment, resulting in ballooning expensive external debt.
In its September 2023 report, Zimbabwe Coalition on Debt and Development (Zimcodd), a debt and development civil society monitoring non-governmental organisation in Zimbabwe, said the publicly guaranteed debt could be as high as $17.7bn, of which $12.7bn was external and $5bn was domestic.
In 2021, Zimbabwe recovered its special drawing rights allocation from the IMF which had been suspended amid political and economic sanctions from the West. Zimbabwe has since made six drawdowns of $857 million in total.
However, the money was mostly used to finance health, agriculture and infrastructure development projects such as road rehabilitation, falling far short of rebooting its choking economy.
In 2022, the Zimbabwe government paid $18m each to China Eximbank and the same amount to Sinosure, allowing the government to unlock $156.73m.
However, much of the money went towards the completion of two new units at the Hwange thermal power station, refurbishment of the Robert Gabriel Mugabe International Airport terminal and cellular network provider NetOne’s fibre project.
Given that Harare, as with many African countries, faces a serious need for credit, the international community should be more decisive and efficient in assisting these countries. Again China is demonstrating leadership in times of desperate economic need.
This act of debt forgiveness underscores the long-standing relationship between China and Zimbabwe, and many African countries characterised by co-operation, mutual benefits, and solidarity, highlighting China’s role as a key partner in the development agenda of the African continent.
By demonstrating a commitment to assisting Zimbabwe in its debt challenges, China sets a precedent for other nations and international institutions to extend similar support.
Furthermore, China’s gesture could pave the way for increased international support and co-operation towards Zimbabwe’s recovery efforts, rallying international efforts to help African countries buckling under heavy debt while dealing with other structural issues that may be at play.