As the burden of Chinese debt is becoming unsustainable and the revenues of the African countries are being sucked into debt servicing, many of them are getting disillusioned and feel cheated. Recently Zambia’s Finance Minister Situmbeko Musokotwane rejected a call from China on February 13 for the World Bank and other multilateral lenders to join restructuring of the country’s debt. He warned that delays were holding up the economy. Expressing the urgency of Zambia to address its debt problem and disappointment with China, he stated that “time is of the essence” to finish a restructuring of about USD 13 billion of external debt, which is running out due to distraction caused by China’s reluctance in reducing loans.
According to Zambian Government data, the country owed Chinese creditors nearly half of the total outstanding debt, waiting for restructuring. Out of the total USD 13 billion loans to be restructured, Zambia owes USD 6 billion to China. China has sought a meaningful discussion on its lone with multilateral agencies, but Zambia is seeking an urgent solution as the higher levels of debts is getting worse from bad. Zambian economy is reeling under a mammoth debt burden, which is beyond its capacity to service. It became the first African country to default in Covid-19 era in 2020. After defaulting on external loans, Zambia is still finding it difficult to service the outstanding debt of nearly USD 15 billion. It is desperate for restructuring of its external debt including from China and Eurobond holders, but there is no assuring response forthcoming from the latter.
It is not Zambia alone which is coming down under debt burden, Indebtedness of the African countries is sucking their resources in debt servicing leaving little for capital formation and building infrastructure. As observed from the latest debt-GDP ratio, many African countries are under stress due to debt burden. The African countries facing high debt burden include Cape Verde with a debt- GDP ratio as high as 157%, Egypt 87.2%, Angola 85%, Gambia 82.9% Ghana 81.8%, Tunisia 80%, Zimbabwe 77.2% and Kenya 68.4%. Africa’s external debt rose five-fold to USD 696 billion between 2000 and 2020, which Chinese lenders accounting for 12% of the total. China is a large creditor to Zambia which has defaulted on its debt. It has also made loans to other African nations struggling to meet their debt obligations, including Angola, Ethiopia, Kenya and the Republic of Congo. They are the most distressed ones, but many others are also feeling the heat of debt burden.
The African continent is heading toward a repayment, with 22 of 54 nations at risk of debt distress, according to World Bank and International Monetary Fund criteria. Biggest African debtors to China include Angola (USD 42.6 billion), Ethiopia (USD 13.7 billion), Zambia (USD 9.8 billion) and Kenya (USD 9.2 billion) to serve their sovereign debt. The capacity of these countries has been severely undermined due to the economic fallout from the pandemic and Russian-Ukraine war. “Huge Chinese lending to Africa has created a dilemma where China will struggle to recoup its money while maintaining its image as a friend to developing nations,” according to researchers of London-based think tank Chatham House.
The G-20 along with other international aid providing agencies, including the multilateral financial institutions announced a common framework for debt restructuring of the debt distressed countries in 2020. China is being criticized for its perceived lack of engagement in the global effort to reduce developing nations’ debt burdens; US Treasury Secretary Janet Yellen has said multiple times that Beijing has become the biggest obstacle to progress. In recent years, especially during the post Covid-19 period Chinese loans to African governments fell from a 2016 peak of USD 28.4 billion to USD 8 billion in 2019 and just USD 1.9 billion in 2020 due to the dynamic factors of the period and a transition from resourced backed or infrastructure-linked lending to calculated business or geostrategic decision-making.
UNCTAD pointed out in UN Conference on Trade and Development in December 2022 that the debt distress problem of the developing countries need to be addressed on priority as the governments of these countries have accumulated over USD 11.5 trillion debt at the end of 2021. Zambia is just one of the developing countries which feels like coming to a blind alley many more are waiting for the same fate. The world needs to respond as the problem does not auger well for the recovery of global economy as well. World desperately needs revival in consumers’ demand and capital investment in developing countries for economic revival and sustainable development to address concerns raised by climatic change. Debt burden in large number of developing countries is coming in the way.