Monday, June 24, 2024

How China’s demands at Debt talks are adversely affecting Zambian Economy – A Critical Analysis


  • 2022 economic gains slowly reversing and thus threatening macroeconomic stability
  • Final IMF Board approval of $1.3billion at risk as it is contingent upon the debt restructuring deal
  • Rising debt burden with interest arrears and penalty charges escalating on defaulted loans

By Mwansa Chalwe Snr

The Monetary Policy Committee (MPC) of the Bank of Zambia in its Statement of 15 February, 2023, has confirmed beyond reasonable doubt that China’s latest demands at the debt restructuring talks, have started to adversely affect the Zambian economy. The Monetary Policy Statement demonstrated the adverse effects that the stalled debt restructuring talks were having on the economy, in terms of the exchange rate, interest rates, inflation and job creation, due to the uncertainty. The 2022 economic stabilisation gains are all at risk of reversal, if no urgent diplomatic action is taken by Zambia.

Rapid depreciation of the Kwacha

The demand by China that Zambia’s local currency government bonds held by foreign investors, should be included in the deal, and has particularly contributed to the rapid depreciation of the kwacha, which has resulted in the increase of fuel prices and public transport fares. The kwacha exchange rate, is Zambia’s most important economic metric as it affects all Zambians regardless of their status because Zambia is an import dependent country

The Bank of Zambia’s statement shows that the demands by China have contributed to the reversal of the gains that the Kwacha made in 2022, which earned it the title of the best performing currency in the world. The Kwacha has been depreciating against the dollar almost every day for two months now, and it is at its weakest in nearly a year, as talks drag on with no end in sight.

“After a cumulative appreciation of 10.0 percent in the previous two quarters, the Kwacha depreciated by 4.3 percent against the US dollar to an average of K16.71 in the fourth quarter of 2022. The depreciating trend in the Kwacha has persisted in 2023, with the Kwacha trading at K19.33 per US dollar as at February 14.

“Foreign financial institutions, that had typically been suppliers of foreign exchange, are now more pronounced on the demand side as they are divesting from the domestic market. This is principally due to tighter global financial conditions, negative sentiments associated with the protracted debt restructuring negotiations and uncertainty around the treatment of non-resident holders of Government securities,” the Bank of Zambia Statement said.

Higher inflation outlook for 2023

The Central Bank has also revised its inflation outlook for 2023.It has partially attributed the forecasted higher inflation to China’s demand to have Zambian foreign investors in local bonds to be included in the restructuring deal.

“Over the forecast horizon, inflation is projected to increase and remain above the 6 – 8 percent target range. Inflation is now projected to average 11.1 percent in 2023 compared to the November 2022 forecast of 8.5 percent,”  The Bank of Zambia Governor, Dr. Denny Kalyalya said. “Negative sentiments arising from the protracted debt restructuring negotiations (and more so the uncertainty over the treatment of the non-resident holders of Government securities) are also projected to add to elevated inflationary pressures.”

Forecast Economic activity and job Creation

The Bank of Zambia has increased the benchmark monetary policy rate to 9.25% from 9.0%. And it recently increased the statutory reserve ratio to 11.5 percent on commercial banks’ deposit liabilities, in order to support the depreciating kwacha. These measures will negatively affect the economy. The cost of borrowing (interest rates) will go up, and there will be continued shortage of liquidity in the economy, which will result in lower economic activity like last year and fewer jobs created.

Geo-political dimension to the debt talks and China’s demands

There is something that most Zambians do not seem to understand about the restructuring talks. There is a chess game that is being played between the US and China, with Zambia being the pawn in the game – which I predicted in my book two years ago. There is clearly a stealth “war” going on between the West/US and China in these debt restructuring talks. And if anyone thinks geo-politics and economics is not at play in the current talks, they must be either quite naïve or have not been following geopolitics of the past twenty years. They are well advised to go research and read more.

China cannot be blamed for its current demands because it is merely pursuing its self-interest by using its economic power in negotiations. China, is in some way, leading other emerging economies in trying to reform the global system for restructuring sovereign debt, which currently excludes multilateral banks like the World Bank. In general, China wants respect and recognition commensurate with its current status as the number one bilateral lender, the number two world economy, and Zambia’s largest bilateral creditor, and the key to the restructuring deal.

The Chinese seem to be pursuing a two pronged strategy in the debt restructuring negotiations, in as far as their demands are concerned. This can only be deciphered by experts on the subject. One is aimed at the West, to pursue reforms in sovereign restructuring, and the other is aimed at the Zambian government so that China can protect its turf which is under some apparent threat.

China has made repeated calls at the restructuring talks and in press conferences, for the World Bank and other multilateral development banks to participate in debt reductions. This demand is clearly targeted at the Parish Club and G7 countries in the debt negotiations.

On the other hand, China is demanding the almost impractical condition, of foreign investors in Zambia’s local currency bonds, to be part of the restructuring deal. This demand is clearly aimed at the Zambian government. It is the clearest sign yet to Zambia that it should directly engage with China at the highest level in order to allay the perception that Zambia has outsourced negotiations to Western countries and institutions. It is designed to put economic pressure on Zambia to act.

This week, Zambians will be on the edge watching the proceedings of the G20 finance ministers central bank governors meetings in Bengaluru, India, from Feb. 23-25.They will be waiting for the outcome of the talks. The meeting’s agenda will include a debt round table discussion on Feb. 25, which China is part of. This has been organized by the host India, the IMF and the World Bank. It will discuss broader issues that are creating roadblocks to debt relief deals for Zambia, Sri Lanka and other countries.

During the G20 meetings in India, the US Secretary of Treasury, Janet Yellen, is expected to focus on unblocking debt restructuring talks and press China to speed up its debt relief for Zambia. The US government’s expectation is to see a deal struck on Zambian debt at these meetings. And the US embassy in Lusaka has echoed the same sentiments: “As Zambia’s largest bilateral creditor and as a co-chair of Zambia’s official creditor committee under the G20 Framework, China has excellent opportunity to follow through on its announced commitment by moving expeditiously to restructure Zambia’s debt so all Zambians can begin benefiting from inclusive economic growth without delay.”

How to unlock the debt restructuring talks

On the basis of past experience, and knowing how the Chinese operate, it is unlikely that they will be swayed and greatly influenced by appeals from their geopolitical rival, the US or the Bretton Woods institutions-International Monetary Fund and World Bank in making their decisions on the deal.

Last year, the new Chinese Ambassador to Zambia Du Xiaohui disclosed that China never wanted to join the G20 Creditors Committee because it believes that friendly bilateral cooperation is the best way to deal with debt between friends. It had to take a direct phone call from Zambian President Hakainde Hichilema on 31 May, 2022 to Chinese President Xi Jinping to unlock the stalemate. And within two weeks, on the 16th June, 2022, the first Official Creditors Committee (OCC) meeting was held after over six months of failure, following the provisional approval of Zambia’s $1.3billion IMF deal on 3 December, 2021.

And following the aforementioned phone call, the Chinese Foreign Affairs Ministry released a statement about what President Xi Jinping had told President Hichilema. The contents of the statement gives a cue of what Zambia needs to do, to unlock the debt restructuring deal.

“The two sides should strengthen strategic communication and policy synergy, fully implement the nine programs of the Forum on China-Africa Cooperation (FOCAC), deepen mutually beneficial cooperation in various fields, promote more Zambian goods, especially quality agricultural products, to enter the Chinese market, and strengthen anti-pandemic cooperation. Both sides should carry forward the Tanzania-Zambia Railway (Tazara) spirit, keep it updated in accordance with the trend of the times, and make Tazara an important transportation channel in the region. The two sides should adhere to independent foreign policy, firmly safeguard international fairness and justice, and uphold the international system with the United Nations at its core and the international order underpinned by international law,” The Statement said.


President HH should find it easy to arrange a meeting to unlock the deal with China for a number of reasons. First, he did not publicly criticise China during the 2021 general elections campaign, unlike some other previous Zambian Presidential candidates. Two, he must have established some good rapport with President Xi Jinping through last year’s telephone conversation. And in general, there has been no express antagonism between Zambia and China since he became President. The deadlocked debt restructuring talks provides him with a great opportunity to recalibrate Zambia’s relationship with China. READ MORE:

President Hakainde Hichilema, has repeatedly stated that his administration intends to continue with the tradition long-established by his predecessors of upholding the all-weather friendship between Zambia and China, and so it should not be too difficult to engage China at Presidential level.

China is Zambia’s big “brother”. The two’s relationship dates back to Zambia’s pre-independence. It is a sixty eight (68) year old relationship, dating back to 1955.The deal is so easy to unlock, if Zambia directly approaches China at the highest level. And this is the appropriate timing for which nobody would be faulted.

The writer is a Chartered Accountant, Author and an independent financial commentator and analyst. He is also an Op-Ed Contributor to the Hong Kong based, South China Morning Post (SCMP) and Author of: “China-West Battleground in Africa: Debt Ridden Zambia”(2021), which is available on (Contact: [email protected]).


  1. At the time ECL was struggling to get an IMF bailout we told him on this forum that the IMF can’t give Zambia money to pay Chinese debts. This is exactly what has happened now. They want China to grant Zambia debt relief which themselves aren’t willing to do. So the Chinese aren’t unreasonable in their demands and this propaganda won’t take Zambia anywhere. HH has so far treated China with contempt and this is the result. It’s not too late for him to change his attitude towards China. Let him get on the plane and get to see President Xi. That’s what will help solve this problem and not propaganda against China

    • The chickens have come to roast!
      No wonder others think the Chinese are like gangsters, taking over mines all over Africa, sending thousands of Chinese workers, destroy environment, bring the minerals such as copper, zinc, gold, silver, diamonds etc home, and making deals with corrupt politicians to plunder the countries.
      This is a good example of China’s ambitious use of loans and aid to gain influence around the world and of its willingness to play hardball on vulnerable countries.” Mind you they were instrumental in removing Robert Gabriel Mugabe.

    • Ayatollah, are you listening to yourself? The IMF is composed of nearly all the countries of the world, including China. So, what debt relief can it grant Zambia? China is a bad lender. This is not Mao’s China. Xi’s China is a ruthless economic opportunist and wants to overtake the US as the richest country on earth so that it can spread Confusciusism and Communism in Chinese characters. If PF were still in power, Zambia’s debt would have doubled by now because they would have continued to borrow.

  2. Unfortunately zambia is in too deep with Chinese debt to be none aligned……….

    The UPND GRZ attempt to unshackle zambia from being a colony of China is faltering because of the strangle hold China has over zambia………..

    Zambia does not have enough strategic minerals for the west to adopt zambia…….

    And again, zambia is in too deep with Chinese debt to be none aligned.

  3. This article gives me hope in our Zambian diaspora and that we indeed have a very intelligent crop of leaders out there with brilliant ideas.

    Mwansa Chalwe Snr you have said what our “local experts” have been failing to say, you have highlighted two critical points:
    1. The exchange rate and it’s absolute critical importance in all areas of the economy. A stable exchange rate brings confidence both locally and externally play with it at your own peril and an economy may never recover.

  4. Ctn..

    2. China’s key role in this debt relief conundrum Zambia is faced with, the unrealistic demands from both the US, IMF on one side and China on the other made towards Zambia with regards to how to go about the debt restructuring program. You have clearly made it clear that Zambia has to be pragmatic in this and opt to go directly to China with the goodwill our country has earned from China not only as a recipient of development aid but also as a contributor to China’s own development by way of our copper exports to them.

    Yes out of this China is the biggest factor and as such we as a country must “render onto Caeser what belongs to Caeser”.

    • Never mind the IMF, IBRD, USA, EU, AU patati patata! We know their agenda been there been done in. What is Zambia’s debt management plan? Is it ‘Please have mercy on us O Great powers’ or is it My fellow Zambians it’s sacrifice time again’? Yer don’t even mention the Eurobond whose revamped railways are nowhere to be seen. Is to safa mwanangwa, is to be endured. Switch on!

  5. Are you saying we must accept to be a Chinese colony, and all that comes eith that………..

    Unregulated Chinese immigration, unregulated Chinese investment, even maize sellers on streets ????

    Because this what being beholden to China means

    • Spaka maybe you were born in 1980. Zambia could have been a Chinese colony a long time ago. At the time Zambia couldn’t export or important through the South , China came and built the TAZARA line which helped Zambia get and send her goods. The debt was eventually written off. But with the baseless arrogance by your leader we sink even deeper.

    • @Spaka have you understood what the article above is saying? Or let me phrase it like this, do you know where the delay in clearing both the debt and the IMF releasing the funds? China is saying why should they have to deal through a third party to come up with an agreement with their debtor, Zambia?

  6. For those of you thinking that China is a friend of Zambia, think again.
    The notorious PF sold us out to China to be its first colony in Africa, now China is exacting its revenge because HH is showing we are an independent country.
    You all don’t believe me, go into YouTube and type in: “why Zambia is officially a Chinese colony” Wode Maya will explain.

  7. Ctn…

    @Spaka so the IMF is saying look Zambia, if you want the $1.3 billion assistance you have to do it this way, which is to first renegotiate your debt with your creditors of which China is the biggest. A question to you Spaka if we as Zambia were to approach China, and China not only agrees to clear off a large part of the $17 billion debt but further give Zambia more development aid would that not be a good thing?

  8. Although upnd were not part of this mess with China, they have already inherited it so now there is no choice but to talk to china and ask for concessions. Or else you will go from best performing currency of 2022 to worst performing currency of 2023 if it isn’t already.

  9. Stop being naive and starting to blame China for your debt. In the first place why did you go to IMF for more debt if China could have bailed you out? How do Chinese resolve their debt? by growing their home production not by borrowing from IMF

  10. I am reminded of how poor parents are made to suffer excruciating anguish just for producing beautiful daughters whose innocence and purity rich people want to enjoy filthily

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