China has called for multilateral development banks, including the World Bank, to offer debt relief to Zambia. China believes that the key to resolving Zambia’s debt crisis lies in the involvement of both multilateral financial institutions and commercial creditors in debt-relief efforts.
In a statement, the Chinese foreign ministry spokeswoman, Mao Ning, pointed out that multilateral institutions and private creditors hold the majority of Zambia’s foreign debt, accounting for 24% and 46% respectively.
“They combined hold the bulk of Zambia’s foreign debt. The key to easing Zambia’s debt burden thus lies in the participation of multilateral financial institutions and commercial creditors in the debt relief efforts,” she said.
China’s push for debt relief for Zambia is a clear sign of its determination to reform the global system for restructuring sovereign debt, which has traditionally excluded lending by multilateral banks. This stance may lead to increased tensions with the World Bank and further prolong the already drawn-out debt talks.
However, Mao has emphasized the importance China places on resolving Zambia’s debt crisis and its role in handling the country’s debt under the G-20 Common Framework, an initiative that brings together the Paris Club of traditional rich lender countries, private creditors, and China to restructure the debts of low-income countries on a case-by-case basis.
China has also highlighted the importance of Africa’s debt issue in the context of development. According to Mao, China’s financing cooperation with Africa has always been centered around enhancing Africa’s capacity for independent and sustainable development. She cited the example of the Kafue Gorge Lower Hydropower Project in Zambia, which was financed and built by China and has a total installed capacity of 750 MW, reducing carbon emissions by 663,500 tons per year. Mao believes that loans for projects like the KGL have helped to strengthen Zambia’s debt sustainability.
The Group of 20 leaders have emphasized the importance of private and official bilateral creditors providing debt treatments that ensure fair burden sharing. However, there is one member with “divergent views on debt issues” who “emphasized the importance of debt treatment by multilateral creditors like MDBs.” This could pose a challenge as the IMF Managing Director Kristalina Georgieva leads the effort to get creditors to agree on fixes to the Common Framework when the G-20 finance ministers and central bankers meet in Bengaluru, India, in February.
The Zambian debt talks are being closely monitored as they are seen as a test case for how sovereign debt restructuring will work in an era where China is the world’s largest sovereign lender and developing countries have issued dollar bonds to private owners. However, World Bank President David Malpass has rejected China’s call for debt relief, stating that there is no mechanism to do so and that this has already been actively discussed and rejected at the G-20. He added that it’s important for China to focus on reaching an actual debt restructuring that lightens the burden for Zambia.
Recently, US Treasury Secretary Janet Yellen visited Zambia and called China a barrier to resolving Zambia’s debt crisis. She has called on China to agree to a rapid restructuring of loans to Zambia and pointed out that many African countries are plagued by unsustainable debt, much of which is related to Chinese investments in Africa.