What they are doing to Zambia is not fair

Zambia’s Financial Tumors

What they are doing to Zambia is not fair at all.

Picture this. You have cancerous tumors in your lungs and need an urgent operation that will save your life. You go to hospital and get admitted to the Intensive Care Unit. A team of four surgeons gather around you in their hoods and scalpels. But just before they begin operating you, they decide to huddle in a corner to consult. Minutes later, they come back and tell you that they can’t operate you because they are not convinced that you will pay them. Meanwhile, your life is slipping away. Every minute counts.

That’s exactly what they are doing to Zambia.

Here are the financial tumors that are draining life from the great country of Zambia.

Zambia owes 17 billion dollars to governments like China, UK and France. It also owes some of these billions to private western lenders.

These financial tumors started becoming deadly in 2020 when Zambia defaulted on repayment of these loans.

Fake IMF Drugs for Zambia’s Financial Tumors

After Zambia defaulted on its loan repayments in 2020, it fell into a financial pit whose bottom is crumbling. Consequently, Musonda, a young Zambian millennial who is 29 and about to step into the third floor of her life is staring into a bleak future of grave financial tumors.

For the last three years since it defaulted on its loans, Zambia has been trying to brighten that future by seeking a cure to its 17 billion dollar tumor. 17 billion dollars is the humongous amount that Zambia owes its creditors. Zambia has held multiple meetings with the official government lenders, with the private lenders and with IMF.

The IMF talks bore fruit on the last day of August 2022. On this day, IMF’s Executive Board approved a proposal to loan Zambia 1.3 billion US dollars. According to IMF, this loan’s goal was ‘to restore macroeconomic stability and debt sustainability, and foster higher, more resilient, and more inclusive growth.’ Could be just the right drug that Zambia’s ailing economy needed? Not quite.

The Problem with IMF’s Drug

After long, tense negotiations spanning many months, Zambia secured a 1.3 billion dollar loan from IMF on August 31^st 2022. Finally it has clasped a drug that could set it on the path of healthy debt restructuring and financial recovery.

But there were two big problems with this 1.3 billion dollar IMF drug – it’s goal of stabilizing Zambia’s economy didn’t explicitly address the elephant in the room – the 17 billion dollar debt. Which leads me to the second big problem of IMF’s loan – it came with strings, sorry, chains attached. Zambia cannot access the full loan unless it strikes a deal with external creditors.

And so Zambia has held marathon talks with those creditors seeking a cure. At the heart of this cure was a realistic debt restructuring. Imagine you owe me one thousand dollars and every month, that debt is increasing by 100 dollars. For you to afford to pay me, I need to scrap off that interest altogether or at least reduce it drastically.  

That’s the kind of debt restructuring that Zambia has been seeking from its creditors. Victory was within sight.

Debt Restructuring Crumbles

Victory was within sight for Zambia’s debt restructuring talks. Musonda, that 29 year old Zambian woman could dare to hope that her thirties would start off on a good economic footing for her country.

Victory was within sight with the private lenders. These guys. After sleepless nights, head scratching and migraines Zambia reached a deal for relief on nearly $4bn owed to private lenders. [bondholders]. Now, this doesn’t mean that the creditors cancelled the 4 billion dollars debt. Rather, they agreed they simply reduced interest rates and agreed that the loan could be paid over a longer period.

But as they say, something is better than nothing, right? Hmmm… am not so sure, especially if it’s still not clear how that something will dig you out of a rapidly deepening financial hole.

Armed with this small but significant breakthrough, Zambia returned to the big debt table. At the head of this table was China, its largest creditor. Also there was the UK, France and other western Governments. No sooner had Zambia taken sat down than the stony faced official creditors delivered bad, bad news.

China’s Bad News

At the beginning of November, Zambia was slowly but surely clawing its way out of its 17 billion dollar debt hole. It had struck a deal with its private lenders to repay a 4 billion dollar debt over a longer period and with smaller interest rates. IMF approved this deal which made it seem like a sure bet.

Unfortunately, the China, UK, France and other Government creditors have shoved Zambia back into the hole. A few days ago in the third week of November, these countries revealed that they are opposed to the 4 billion dollar debt restructuring deal with private creditors. This has forced Zambia to suspend that deal.

Heartbroken, Zambia’s Finance Ministry released a statement stating that the Zambian Government “currently doesn’t have the support of official creditors and is unable to move forward at this time.”

This is not fair for the people of Zambia. Thankfully there is a way forward. But it can only succeed if the entire Africa joins forces.

The Way forward

After China, UK and France rejected Zambia’s debt restructuring deal, the private lenders who had reached the 4 billion dollar deal with Zambia released this grave statement:

“This is an extraordinary position to take and will have significant adverse consequences, most immediately for Zambia.”

Musonda, the 29 year old Zambian lady together with twenty million other Zambians have been shoved deeper into a national financial pit. A pit that was dug through the unholy alliance of previous Zambian Governments and irresponsible external lenders.

The Zambian people have suffered enough. Africa should now speak with a united voice. Africa should demand these three things from both official and private creditors:

• Waive all interests that are accumulating on big loans like Zambia’s 17 billion dollar loans.
• Triple the repayment period of the principal amounts
• Partial debt cancellation

There would have been no irresponsible borrowing if there had been no irresponsible lending. Africans have suffered enough. It’s time for Africa’s irresponsible creditors to also suffer.