The agreement of 4,100 million dollars that was signed last week in Paris does not include credits from private banks, in which the State also has a majority stake. According to Chatham House, from 2000 to 2020 the indebtedness of African countries increased fivefold and 12% is in the hands of Chinese institutions. Meanwhile Sri Lanka has asked its creditors for a 30% reduction, a course that Beijing has always refused.
Milan ( / Agencies) – An important breath of fresh air for Zambia. But many questions remain about the future of African countries heavily indebted to China. This is how we can summarize the result of the 6.3 billion dollar agreement reached last week by Lusaka with the creditor countries at the Summit for a New Global Financial Pact that was held in Paris.
The Zambia issue has long been seen as a major test for all of Africa. In fact, according to a study published earlier this year by Chatham House, as many as 22 African countries are already in debt distress or are at high risk of becoming so soon. And Chinese lenders together account for 12% of Africa’s public and private external debt, which more than fivefold between 2000 and 2020, to $696 billion.
In 2020, Zambia was the first African country to default on its external debt due to Covid-19 and immediately submitted a request for reduction to creditor countries. Yet it took almost three years of negotiations to reach an agreement at least on bilateral debt, with the World Bank and International Monetary Fund repeatedly blaming China for slow progress. Beijing owns a whopping $4.1 billion of this debt, while France, Britain, South Africa, Israel and India hold the rest.
In the end, at the negotiating table, however, Beijing achieved two important results. First, Zambia was not granted any debt relief, just an extension: it will reorganize in 20 years, with a three-year moratorium. It is, therefore, the strategy that Beijing has always indicated for its creditor countries.
On the other hand, as Zambian Treasury Minister Felix Nkulukusa clarified today for the Chinese side, the agreement only concerns debts with the Export-Import Bank of China, the Chinese institutional bank for international cooperation. However, the country’s shoulders also weigh another 1.7 billion dollars in debts with two large Chinese banks – the Industrial & Commercial Bank of China and the Bank of China – which, although formally private banks, have the Chinese state as their main shareholder. And as for the private part of the debt -which would amount to at least 4,500 million dollars-, the negotiations are still open. This is also crucial because interest rates on private debt are often higher. Commenting on the outcome of the Paris summit a few days ago, the Debt Justice campaign wrote: “Billions of dollars are still owed to big banks and hedge funds which, if paid in full, could get a benefit of up to 250% of Zambia’s debt”.
Just today, meanwhile, in Sri Lanka – another country mired in a deep economic crisis and highly exposed to China – the governor of the central bank, Nandalal Weerasinghe, has officially asked international lenders for a 30% reduction in its debt and is seeking similar concessions. Until now, China has rejected it, again only opening the possibility of extending the maturity of the debt.
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