Exim Bank to the rescue as Zambia fights debt crisis

Zambia has received a shot in the arm as a Chinese bank has suspended interest and principal payments on sovereign loans amounting to $110 million that were due between May 1 and December 31, 2020.

A government statement late on Monday said the move by the Export-Import Bank of China (Exim Bank) was aimed at helping Zambia ease its debt and liquidity pressures as it mobilises resources to fight the Covid-19 pandemic.

“This is in line with the G20 Debt Service Suspension Initiative Framework,'' said Secretary to the Treasury Fredson Yamba.

“The development is an important milestone for Zambia in pursuit of a broad-based debt relief effort,” he said, adding that the Zambian government was thankful to China.

In mid-October, Zambia got some debt servicing relief from China Development Bank, putting more pressure on private bondholders, although that does not seem to be working in the country’s favour given the latest development.

The Chinese State-owned lender agreed to defer interest due October 25 for six months and reschedule the principal due by the same date over the life of the facility.

Position worsening

Zambia’s distressed debt position has worsened, with the government defaulting on some loan payments.

Finance Minister Bwalya Ng’andu told the State TV on Sunday night that some lenders are furious with the southern African nation’s decision to service a Eurobond under the circumstances.

“I have been building arrears with other creditors. They’re upset that I’m building arrears with servicing the Eurobond. That’s the problem,” Dr Ng’andu said.

“You can’t pick one set of creditors and treat them differently.”

The amounts in question were not immediately clear.

Zambia had until November 13 to convince holders of its $3 billion in Eurobonds to accept a six-month interest-payment holiday. The request was rejected.

Huge external debt

An estimated $12 billion (51 per cent of the gross domestic product) was the external debt in Zambia’s books at the end of 2018.

About 30 per cent was owed to China, 25 per cent to bondholders and 19 per cent to foreign banks. The World Bank, the IMF and Western governments hold a relatively small share.

According to analyses by the International Monetary Fund and the World Bank, some loans have been authorised but are not listed among official figures. They amounted to about $10 billion as at April 2019.

Zambia’s stock of external debt as at the end 2019 was $11.97 billion but the guaranteed debt for State-owned enterprises came to$13.55 billion, the minister said.

Most of the money borrowed was used to build infrastructure and pay civil servants.