China Key to Successful Zambia Debt Restructuring, Say London Experts

In a letter written to the Financial Times, a pair of Professors – one of them, Prof. Subacchi, in International Economics, the other, Prof. Olivares-Caminal, in Banking and Finance Law –  at the Queen Mary University of London offered their expert insight to explain why China is crucial to Zambia’s debt relief.

Profs. Subacchi and Olivares-Caminal reiterated claims made by IMF Managing Director Georgieva and U.S. Treasury Secretary Yellen while on their trips to Zambia. Both Georgieva and Yellen recently visited Zambia in an effort to further develop Zambia’s economic recovery, and pointed to China as Zambia’s largest single creditor.

The financial experts reminded the FT that China “is Zambia’s largest creditor by far (accounting for 30 per cent of outstanding debt)”. In what may be considered a response to a statement made by China’s foreign ministry spokeswoman Mao Ning last week, in which Ning insisted that multilateral development banks and creditors accounted for 70% of Zambia’s debt, the pair gave their own research. According to the pair, “Second to China is the group of private sector bondholders with 16 per cent of the outstanding debt, and then come the multilaterals with 13 per cent”.

Profs. Subacchi and Olivares-Caminal added that, contrary to what was recently contended by Mao as she pushed the World Bank to help Zambia, it is unlikely that the multilateral development banks and private sector bondholders will be able to reach a “workable solution”, because they “have different objectives and different incentives”.

The academics have envisaged their own path to a solution that suits all parties, which they believe involves all involved parties accepting some degree of compromise. Responding to claims made by Alan Beattie in his FT article from Jan. 30, Subacchi and Olivares-Caminal are not of the opinion that “there are ‘serious differences of principle’”; instead, the question should be “how to align China’s incentives with those of the other bilateral creditors, the multilaterals, and the private sector”. For such a balance to be reached, it will be crucial, they believe, to weigh up the expectations of these entities “and define what would be an acceptable outcome”.

The Professors noted that, with the G20 summit and its accompanying debt resolution framework due in September 2023, it is likely that there will be an expectation for China “to bear the brunt of the losses as the multilateral institutions are exempt”, which may well “set an important precedent going forward”.

The ongoing debate as to which institutions are best-equipped, and, perhaps more significantly, most inclined, to unlock the next phase of Zambia’s economic growth is a discussion with wider implications for recovering nations in Africa and beyond. Profs. Subacchi and Olivares-Caminal concluded by urging “greater co-ordination” between major creditors. Insightfully, they also identified the importance of Zambia’s debt resolution as a model for other countries whose financial survival through COVID led to mounting debt, emphasising that “many developing countries can benefit from better processes and greater accountability”.

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