Zambia’s Chinese debt could be double previous estimates

Zambia’s outstanding external debt to Chinese financiers is approximately $6.6bn, almost double the $3.4bn revealed by the previous Zambian government, according to a research paper by the China Africa Research Institute (CARI). 

The Institute, based at Johns Hopkins University, says that its estimate, sourced from its data on loan commitments, includes all public sector external debt to Chinese official and commercial creditors, but does not include penalties or accumulated interest arrears. 

The revelations come as new Zambian president Hakainde Hichilema enters talks with major US-based creditors including the IMF and World Bank in the hope of securing a new bailout. The lenders have previously expressed concerns about the extent of Chinese lending to the country.

In November, Zambia became the first country to default on its Eurobonds, but Hichilema, elected in August, has promised a new era of openness with creditors after a period of heavy borrowing under predecessor Edgar Lungu. 

CARI found that 18 major Chinese financiers have provided external loans to Zambia and its state-owned enterprises since 2000. Loan commitments between 2000 and 2020 totalled $10.3bn, $6.47bn of which has been committed since 2015. CARI estimated that $7.8bn of those funds were actually disbursed by August 2021, with loans of at least $1.2bn estimated to have been repaid since 2000. 

Zambian state-owned enterprises have proved particularly receptive to Chinese finance. Excluding the Kafue Gorge Lower project, the Institute estimates that state-owned power company ZESCO owes closer to $930m to all creditors rather than the $527m previously reported by the company’s Ministry of Finance. 

The estimates do not include substantial arrears to Chinese contractors for unpaid projects, part of an estimated domestic arrear pile amounting to $2bn. 

Finding solution will be difficult

The complexity of the interactions between Zambia and multiple Chinese lenders could undermine efforts to negotiate a solution, say CARI researchers Deborah Brautigam and Yinxuan Wang.   

“Given the complicated situation with at least 18 Chinese lenders having provided external loan funding to the Zambian government and its state-owned firms, reaching consensus on burden-sharing is likely to prove exceptionally difficult.”

CARI says that China agreed to provide a one-year grace period and three years repayment in Zambia for all government-to-government loans in 2020. Two Chinese policy banks, China Eximbank and China Development Bank, have already provided debt relief to Zambia, but the researchers argue that suspension of debt service and longer repayment periods are unlikely to be enough. They say that the impasse offers a chance for China’s State Council to coordinate a response from all Chinese lenders. 

The researchers say that the estimate should not be interpreted as evidence that Zambia’s total public external debt as of December 2020 was higher than the previously reported $14.3bn, nor that the Lungu government was not transparent about the heavy weight of Chinese financiers among external creditors.

But the report says that Lungu’s government ramped up Chinese borrowing for public works as copper prices were falling. Despite being labelled as at “high risk” of debt distress in September 2017, the government secured at least $1.34bn of Chinese funding in 2018.