China has rescheduled Zambia’s debts without writing them off
, Zambia’s rich-country creditors announced said deal: they had agreed to push back repayments on their lending by two decades to 2043. The wriggle room created by the extension, as well as accompanying interest cuts, could make Zambia’s debt burden considerably lighter—a surprise, since the biggest of the country’s creditors is China, which holds $4.2bn out of $6.3bn of its external debt to official creditors, and has spent the past few years obstructing an already chaotic process.
Thus international financiers were forced to get creative. Before the deal was announced, the amount Zambia owed official creditors fell from $8bn to $6.3bn. The borrowing was reclassified as having been lent by the private sector, so it could be left out of this part of the process, even though in reality it came from one of China’s state-run banks and was guaranteed by Sinosure, a state-run insurer. China still point-blank refuses to cut the face value of its loans.
The breakthrough also relied on unusual stipulations. Zambia will pay 1% annual interest on borrowing until 2025, a big discount. At this point, if Zambia’s economy is judged by theto be picking up, which is likely, the rate will rise to close to 4%, wiping out lots of the country’s debt relief. In this scenario, creditors, including Beijing, will earn about the same as they would have by putting the cash in ten-year Treasuries.
Zambia’s is the latest of several strange restructurings. In May Suriname, which owes China $155m and had been waiting three years for a deal, bucked a trend. It restructured lending from the private sector before it had reached an agreement with China, an official creditor. Last year Chad also managed to strike a deal, but only by rescheduling rather than lowering payments.
For now, that does not bother Mr Hichilema. He needs to tackle the next stage in his country’s restructuring deal: private-sector creditors. He must decide whether to emphasise the generous terms he has won from official donors, which stay if the economy struggles, or reassure bondholders that he is already working to ensure a world in which the terms become stingier, and his country is on the up.
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