Receive free Zambia updates
we will send you one myFT Daily Digest Email roundup of the latest news zambia News every morning.
Zambian President Hakainde Hichilema has arrived in Paris as creditors of the southern African country, including China, are close to reaching a deal to restructure their debt after years of delays.
Hichilema said on Wednesday he would join French President Emmanuel Macron and Chinese Premier Li Qiang at the global finance and climate summits that begin on Thursday – a sign that the Zambian leader hopes to “be in the next few days” reach an agreement.
Africa’s second-largest copper producer has been in financial trouble since defaulting in 2020. It can’t go ahead with a $1.3 billion bailout from the International Monetary Fund as the country’s largest creditor, China, and other lenders clash over proposals to cut the value of its roughly $13 billion foreign debt by about half.
The impasse in Zambia has become symbolic of a broader disagreement between China and the West over the fundamentals of resolving sovereign debt crises from Sri Lanka to Ghana, after Beijing quickly emerged as the developing world’s largest single-country lender over the past decade.
A deal on Zambia’s debt in Paris will raise hopes for other countries negotiating to restructure China’s debt and signal Macron’s ambitious efforts to unleash climate and other financing for some of the world’s poorest countries two-day summit.
China has been reluctant to accept direct write-downs of foreign loans by its banks, and in Zambia’s case it has proposed that multilateral development lenders such as the World Bank take the unprecedented step of joining the restructuring. Other creditors have defended the institutions’ established rules to avoid losses so they can keep lending at low rates.
A banker with knowledge of the talks said an agreement among official creditors would be “real progress”, although a full restructuring of Zambia’s external debt would still require an agreement among private creditors, such as holders of the country’s $3 billion euro bonds.
A debt investor involved in the talks said the development bank would likely offer concessional loans rather than a debt write-down as a way to seal a deal.
Zambia has excluded its local currency bonds, even foreign holdings, from the restructuring amid concerns over domestic financial stability. Some creditors say the latter should be included. Others say current debt-relief targets, such as the debt-to-export ratio, are too pessimistic.
Foreign buyers of Zambia’s domestic public debt appear to have reduced their holdings from $3.2 billion to less than $2 billion since late last year, the investor said, citing concerns that domestic borrowing could be included in a restructuring like Same in Ghana as in Sri Lanka.
Servicing the assets would absorb about 80% of the funds available to service external debt, the Treasury said in October. A sharp reduction in foreign holdings of domestic debt would free up more funds for other creditors, including China, opening the door to a deal, the investor said.
A credible deal to overcome disagreements over the scope of debt relief would also allow the IMF to resume disbursements to Zambia under the bailout, such as the $188 million payment that was put on hold earlier this year.
Eswar Prasad, a professor of economics at Cornell University, said: “For China, the end result seems to be a solution to limit its financial damage, while blaming many heavily indebted economies more broadly. the frustrating and unsustainable situation in which the community finds itself.”