Bill O’Brien, Editor
Zambia’s debt negotiations with China have largely been behind closed doors, garnering distrust among Zambia’s retail investors.
Last week the Collegian covered the ongoing debt crisis in Africa that has been fueled by Chinese loans, which make up about a third of debt loads in numerous key struggling countries. Chinese lending practices have been judged differently across the board, with U.S. officials calling out the Chinese government for a practice called “debt-trap diplomacy,” a foreign policy strategy in which a lending nation uses looming default on debt to seize strategic assets from the borrowing nation as collateral. Others reject that theory, citing that China lacks a history for seizing assets over debt defaults but rather provides relief and restructuring options to the nations they lent to. For some nations, that debt crisis is coming to a heel. Zambia, a nation that owes a third of its debt to China, is currently in talks with holders of $3 billion worth of Zambian eurobonds. Zambia has already stated that, unless it is granted an interest payment holiday, a request that will be voted on next week by its eurobond holders, it will not be able to service its bonds. A core group of the eurobond holders have already rejected the proposal.
Owing a third of its debt to China, Zambia will undoubtedly have to address how it is going to service its loans from the economic superpower. With about a dozen other nations in talks with China for debt relief, Zambia will be a testing ground, setting a precedent for how future debt negotiations may go. A key part of Zambia’s debt management strategy is to garner relief from the World Bank and the IMF, organizations that have already begun working to stabilize the African debt crisis but fear their efforts may not be enough. The World Bank has already called for an additional $25 billion in relief funding for the world’s poorest nations on top of a debt-relief initiative the Group of 20 just renewed.
To make matters worse, Zambia has been running into roadblocks earning the good faith of their eurobond holders. They have isolated their talks with China, and conducted negotiations with the People’s Republic behind closed doors, spurring distrust of its retail lenders. Its eurobond holders and retail investors are concerned that China is seeking to gain more favorable loan restructuring terms in closed negotiations and have expressed extreme caution in coming to terms with a deal until China comes to the table with them.
In the next couple of months, Zambia will be heavily reliant on relief coming from organizations like the G20, World Bank and the IMF, and they will have to strike a deal with their debt holders before their inevitable default. Conducting transparent talks with China will be key to earning the good faith of their retail bondholders, including the eurobond holders that vote next week on whether to give Zambia an interest payment holiday.