Reaction to debt relief deal for Zambia

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Today it has been reported that Zambia’s official creditor committee announced it has reached a deal to restructure Zambia’s debt.

Reacting to the announcement Isaac Mwaipopo, Executive Director of the Centre for Trade Policy and Development, a member of the Zambian Civil Society Debt Alliance, said:
“This is a welcome, but long overdue, development. The delay to reaching consensus on how to restructure Zambia’s debt was beginning to erode positive gains the economy was experiencing from some of the reforms that have been undertaken in the last two years. It was further creating uncertainty on potential investment opportunities. Now that there is a memorandum, we appeal to all parties involved to work together and expeditiously to finalize restructuring Zambia’s debt.”

Tim Jones, Head of Policy at Debt Justice said:
“Zambia’s private creditors such as BlackRock now need to urgently agree significant debt cancellation. Private loans were lent at high interest rates, and have been trading at low prices, so piecemeal debt relief will still leave lenders making large profits. Instead of standing by and watching private lenders profit at the expense of the Zambian people, the UK government could pass legislation to make private lenders take part in debt relief.”

The Zambian Civil Society Debt Alliance and Debt Justice have calculated that Zambia’s external private and government lenders need to cancel two-thirds of the debt to make it sustainable.[1] Debt Justice have estimated that Zambia’s largest bondholder, BlackRock, could make 110% profit for itself and its clients if paid in full.[2]

All of Zambia’s bonds are governed by English law. In March, the UK Parliament’s International Development Select Committee called on the UK government to “consult on the introduction of legislation to compel or incentivise participation of private creditors in the Common Framework [the G20’s debt relief scheme which Zambia is using]”.[3] In 2010 the UK passed the Debt Relief (Developing Countries) Act which enforced the Heavily Indebted Poor Countries debt relief initiative on private creditors.

Zambia owes $4.5 billion to Western private creditors: $3 billion of foreign currency bonds, the largest known holder of which is BlackRock, and a further $1.5 billion as direct loans to Western private creditors, such as Israel Discount Bank ($362 million), Investec ($351 million) and Standard Chartered ($268 million).[4]

Zambia owes a further $1.4 billion to Chinese commercial lenders, $2.8 billion to Chinese bilateral lenders and $1.1 billion to other governments (the largest are India $300 million, UK $240 million and South Africa $157 million).

The average interest rate on the Western private loans is 7%, compared to 5.2% on the Chinese commercial loans, 3.9% on the Chinese bilateral loans and 1.6% on the other government bilateral loans.[5]

Group of creditors Debt stock owed Average interest rate
Western commercial $4.5 billion 7.0%
Chinese commercial $1.4 billion 5.2%
Chinese bilateral $2.8 billion 3.9%
Other bilateral $1.1 billion 1.6%

Zambia owes a further $4 billion to multilateral institutions, which is not being included in the debt restructuring.