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East-West blame game on debt heats up

IMF chief Georgieva and US Treasury secretary Yellen call for creditors to speed up key talks on Lusaka's finances

Zambia's President Hakainde Hichilema urged creditors on 23 January to accelerate negotiations to restructure some US$13 billion of the country's $17bn foreign debt after meeting with Kristalina Georgieva, managing director of the IMF, in Lusaka.

Both Georgieva and United States Treasury Secretary Janet Yellen, who arrived in Lusaka on 22 January, agree with Hichilema that lack of progress on the debt workout is holding back Zambia's economy. But there is no consensus about who is holding up a deal.

Zambia negotiated a $1.3bn bailout with the IMF last September. It has requested debt relief under the Group of 20 (G20) Common Framework but little progress has been made with private and official creditors after 18 months of talks (AC Vol 63 No 19, Fears of pain in prospect & Vol 63 No 23, Loans before haircuts). The IMF reckons that Zambia needs $8.4bn of 'cash debt relief' from 2022 to 2025.

The Common Framework procedures are seen by many African governments as too bureaucratic and have failed to bring in private sector creditors. The World Bank has also come under fire for failing to be more pro-active on resolving the worsening debt pressures in developing economies.

Yellen has called on China to do more to ease the debt burden in Africa, particularly Zambia. Before her African tour, she met China's finance minister Liu He in Zurich, for what was described as a positive encounter.

'I specifically raised the issue of Zambia [with Chinese officials] and asked their cooperation in trying to reach a speedy resolution. And our talks were constructive,' said Yellen.

China and France co-chair the creditors' committee which has been negotiating a debt relief with Zambia. But US officials say that China's insistence that both local currency (kwacha) debt held by foreigners and debts owed to the international financial institutions (such as the IMF and World Bank) should be included in the deal is holding up progress.

Last year the IMF said that including Zambia's domestic debt in the restructuring could destabilise the local banking sector. 

But China, whose companies and banks are owed almost $6bn out of Zambia's $17bn foreign debt, has pushed back hard in the debt blame game and its embassy claims it has been making progress: 'China has been active in co-chairing Zambia's official creditors' committee under the G20 Common Framework and working hard with other parties to seek a sustainable solution in line with the principle of common actions and fair burden-sharing.'

Beyond Zambia, the wider debt picture in developing countries will demand more determined action according to a new report from the World Bank.

The world's poorest countries faced $35bn in debt-service payments to official and private-sector creditors in 2022; more than 40% of which is due to China, the World Bank found. This could rise to $69bn by 2024, according to World Bank.

The Common Framework roundtable, formed to improve its functioning, is to meet for the first time in India next month on the sidelines of the meeting of G20 finance officials (AC Vol 63 No 21 Mounting calls for global debt plan as payments crunch looms).

Geopolitical rivalries are complicating these negotiations. Yellen's visit is the first of a series of African visits by senior officials in US President Joe Biden's administration following December's US-Africa leaders' summit (AC Vol 64 No 2, Grand ambitions, little money). 

While Yellen was in Zambia, Russia's foreign minister Sergei Lavrov met with his South African counterpart Naledi Pandor and praised Pretoria's 'independent and balanced' stance on the war in Ukraine. Yellen is due to land in South Africa for the final leg of her three-country trip on 24 January.

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