The Centre for Trade Policy and Development has urged the Zambian government to immediately renegotiate its debt owed to China.
In a paper by Trevor Simumba titled “He Who Pays the Piper: Zambia’s Growing China Debt Crisis” CTPD said restructuring this debt is critical if Zambia is to avoid the debt distress that the IMF is warning against.
CTPD Executive Director Isaac Mwaipopo said renegotiating the debt is a key priority for the Zambian government.
Mr Mwaipopo said Zambia’s debt burden has risen dramatically in recent years, and Chinese loans form a major part of this debt.
“Not only are debt levels rising, but the level of Chinese loans borrowed by the government for infrastructure and natural resource projects is significant,” Mr Mwaipopo said.
“The IMF estimates that overall debt will stand at 60% of GDP by the end of 2018 (up from 35.6% in 2014), but most concerning is the IMF’s re-categorisation of Zambia earlier this month from a country at “medium risk” of debt distress to one at “high risk” of debt distress.”
He said these are clearly legitimate concerns that this public debt is no longer sustainable, meaning that the government might soon be unable to repay what it owes.
Mr Mwaipopo observed that the scale of Zambia’s debt, and in particular debt from Chinese sources, is staggering.
Key findings contained in the paper “He Who Pays the Piper: Zambia’s Growing China Debt Crisis”
- Zambia’s external debt increased from US$6.95 billion at end of the 2016 to US$8.74 billion by December 2017.
- Over the same period, domestic debt rose from US$3.47 billion to US$4.64 billion.
- In 2017 Chinese debt was approximately US$2.3 billion – 27% of Zambia’s total external
- In 2016 US$1.7 billion was lent to Zambia by Chinese sources. This represents 50% of
all new loans contracted that year.
The priorities should be:
- Renegotiation of Chinese Debt: The Chinese ambassador has signalled that China would be open to considering a restructure of its debt to Zambia, and the government must seize this opportunity to try and gain better terms in order to lessen the chances of debt distress.
- Greater Transparency: Increasing transparency around the structure and scale of Chinese debt will help to both reduce market uncertainty and improve the value for money of Chinese projects. An independent audit of Zambia’s current debt position is a crucial first step.
- Strengthening of Debt Oversight Systems: The government must review and reform the current, ineffective debt management system. The system must be revitalised and it must be aligned to Zambia’s national planning needs to help ensure that Zambia’s debt is necessary and sustainable.