Zambia default fuels fears of African ‘debt tsunami’ as Covid impact bites | Global development
Zambia has become the first African country to default on its debts since the pandemic, raising fears that a “tsunami of debt” could overwhelm the continent’s most indebted countries as the financial impact of the coronavirus hits.
A hastily-convened G20 finance ministers meeting in Saudi Arabia failed to settle Zambia’s debt, after the southern African country missed a $42.5 million coupon payment ( £32million) on its bonds in October. Missing another payment on November 14 meant a technical default.
Zambian Finance Minister Bwalya Ng’andu was quick to blame banks and asset and fund managers who wanted more transparency over an estimated $3 billion debt to China, but who refused to sign the necessary confidentiality agreements, he said.
Ng’andu told state television, “The Chinese banks’ position is, ‘You won’t give anyone any information without the confidentiality agreements in place.'”
The Zambia External Bondholder Committee, a consortium of lenders that holds 40% of Zambia’s outstanding Eurobonds, said in a statement that it had had no direct discussions with authorities. As a result, “the lack of commitment and transparency does not provide the conditions that would otherwise allow bondholders to consider providing short-term relief,” they said.
Other organisations, including the International Monetary Fund (IMF) and the World Bank, said Zambia had taken on more debt than it could bear. Even before the pandemic, Zambia had to pay $1.7 billion to repay its debts this year, which is equivalent to more than 8% of the country’s GDP for 2020.
But the coronavirus plays a key role in the recent default. As financiers negotiate with finance ministers over repayment terms, the virus is draining Zambia’s already fragile health resources.
“As I speak, it is raining outside,” said Eneya Maseko, program manager for Oxfam in Zambia, who said the onset of the rainy or rainy season would bring additional challenges like cholera and potentially a second wave of Covid-19. So far, Zambia has recorded almost 18,000 cases of the virus.
“This era we find ourselves in comes with serious health issues. We need health care providers to have a certain level of preparedness,” Maseko said.
But the Zambian government is currently debating a budget that would see less money spent on health care and more on debt repayment.
“It is simply immoral for bondholders to demand full repayment and make huge profits on Zambia’s debt as the country grapples with Covid-19, a major economic crisis and a skyrocketing levels of poverty,” said Sarah-Jayne Clifton, director of the Jubilee Debt Campaign. , which estimated that some financial institutions will make a 250% profit on their Zambian bonds.
Neighboring governments are shaken: if Zambia had to default, they might too.
“Ghana looks very risky to me,” said Tim Jones, policy manager for the Jubilee Debt Campaign. He added that Angola, Chad and Congo-Brazzaville were also threatened.
A separate study by the Institute of International Finance warned of a “tsunami of debt” as global indebtedness topped $277 billion in the third quarter of this year. In emerging markets, which are more likely to default, debt rose by more than a quarter.
This potential wave of defaults could have catastrophic effects on already fragile health systems, aid agencies have warned.
“At a time when hospitals and healthcare systems are crumbling under the strain of Covid-19, it is perverse that poor countries have to pay $3 billion a month in debt repayments to rich banks, investment funds or the World Bank, as their people sink deeper into poverty and destitution,” said Chema Vera, Acting Executive Director of Oxfam International. “Debt must be cancelled, postponing it is futile.”
“The UN Security Council could pass a resolution to compel private creditors to agree to debt restructuring,” said Jones, who argued that private lenders prove the hardest to negotiate when it comes to debt restructuring. these are debt restructuring agreements.
The terms of Zambia’s default will be negotiated next month when the IMF visits the country to discuss a potential $1.3 billion loan. These terms could provide a model for other countries that are on the verge of default.
“For the ordinary Zambian, the things they need to live a decent life and be healthy will be very difficult to expect from the government,” Maseko said. “I really find it hard to think of a worse case scenario.”