China committed to joining Zambia creditor committee

China committed to joining Zambia creditor committee
Cobus van Staden
The China-Africa Daily Brief, 25 avril 2022

After months of inaction, there's word now of an important breakthrough in restructuring Zambia's ballooning $32

billion debt. China, widely perceived as the lone holdout, has finally agreed to join a multi-party creditors committee, according to IMF Managing Director Kristalina Georgieva during the group's Spring Meetings that took place last week in Washington.

Georgieva reportedly relayed comments made by Chinese central bank governor Yi Gang during the IMF meetings that Beijing plans to co-chair the creditor committee.

China's apparent willingness to join the debt restructuring process came just as Zambian Finance Minister Situmbeko Musokotwane issued his strongest denunciation to date of creditors for their inaction, describing the process as "stalled" and at a "stalemate." 

But his mood seemed to have changed after the IMF meeting when he heard that China would, in fact, join the creditors' committee. “China’s pronouncements at the 2022 Spring Meetings of the IMF/World Bank are important building blocks in Zambia’s case for debt restructuring,” he said in a statement late Thursday. “Their message is very positive for us.”

It's not clear what prompted China to finally agree to join the Creditor Committee given that up until even just a few weeks ago it was widely seen to be resistant to the idea.

A consortium of 18 different Chinese creditors collectively owns approximately $6.6 billion of Zambian debt, accounting for a third of Lusaka's $17 billion of external debt obligations that also include private creditors and other bilateral loans.

4 Challenges Facing China in Zambia's Debt Restructuring:
  • COORDINATION: Unlike many other African countries, Zambia's Chinese debts are not owed to just one or two policy banks but instead across a diverse coalition of private and public creditors who all have different agendas. It will not be easy for Chinese negotiators to reach a consensus with this consortium on the terms of any proposed restructuring arrangement.
  • TRANSPARENCY: One of the main sticking points in getting the Chinese creditor consortium onboard has been an insistence on strict confidentiality agreements in any proposed restructuring deal. Private and multilateral creditors insist, though, that this is not negotiable as they contend that transparency ensures equal treatment of all creditors. 
  • HAIRCUT: Chinese creditors in Zambia have reportedly said they will agree to a so-called "haircut," which is effectively a loss on their investment, but historically Chinese creditors have fought very hard to limit the damage. Again, because there are so many different creditors, it will not be easy for whoever is coordinating the Chinese delegation to reach a consensus on how much to concede.
  • PRECEDENT: Unlike many international creditors, Chinese stakeholders have been extremely reluctant to restructure large amounts of debts in developing countries, partially out of concern that if they do it in one country demands will immediately surface to do it in others. This explains, in part, why Chinese loan contracts have such rigid non-disclosure clauses as the Chinese preference is to confine each agreement to a bilateral arena.