Zambia’s finance minister, Situmbeko Musokotwane, has been extremely busy during
the past two months. Finally, he was able to receive a $1.3 billion loan from the IMF
with a grace period of five and a half years and a final maturity of ten years. The loan
was supported by a number of earlier negotiations with Zambia’s creditors, which for
the first time included China, which is responsible for almost 30% of Zambia’s debt
and is comparable to (non-Chinese) private creditors.
This is a great offer. Additionally, what does the IMF agreement mean for the other
low- and middle-income nations that are categorized as being in “debt distress,”
including those that receive funding from China?
There are two crucial elements of Zambia’s agreement with the IMF to comprehend
when taking a close look at the specifics of the IMF report provided to lay out the
terms and circumstances of the deal, as well as recent comments by the country’s
Ministry of Finance and National Planning.
First, Zambia would prioritize recurrent expenses over investments in public
infrastructure, which are traditionally funded by Chinese stakeholders.
Zambia has specifically stated that it will completely cancel 12 planned projects, half
of which were expected to be funded by China EXIM Bank, along with one by ICBC
for a university and another by Jiangxi Corporation for a dual highway from the
capital.
Additionally, the government erased 20 unpaid loan sums, some of which were for
brand-new projects and others for ongoing ones. Similar statements were made in
2018, for example, and such cancellations are not unusual for Zambia, but the
majority of these loans come from Chinese partners. Ten of the canceled loans are
from China EXIM Bank; together with three other Chinese loans from ICBC ($303
million) and one from Jiangxi Bank ($157 million), these loans will save Zambia $1.1
billion over the next few years. The remaining six undistributed loan sums, totaling
$483 million, are primarily from commercial lenders.
While some of these cancellations may have been initiated by Chinese lenders
themselves, especially those in arrears, Zambia seems to have escaped the clutches of
the Chinese. Dealing with the devil can never be beneficial in the long term. The truth
is that 77 percent of people in Zambia lack access to clean water for drinking, 60
percent lack access to electricity, and 46 percent lack access to the internet. To match
China’s level of road infrastructure, the nation would need to make a 234 percent
improvement. Still, it seems Zambia has made the right choice, given that China is
known to give predatory loans and lead unsuspecting countries into a debt trap. It is
also known to employ the tactic of giving resource-backed loans to African countries.
In these loans, repayment is not made with cash but in terms of giving first access to
China for its rare earth metals.
The second thing to comprehend about the Zambia-IMF agreement is that China will
probably take a backseat as a development partner, which is connected to the first.
The IMF’s agreement permits the continuation of 62 concessional loan projects from
12 different lenders, the majority of which are managed by international institutions
and once again include ongoing expenses as opposed to infrastructure-focused
initiatives.
Through the African Growing Together Fund, the Zambian government will only
pursue two Chinese-funded projects related to water, sanitation, and roads (a fund cofinanced by China and the African Development Bank).
Instead, the Zambian government has indicated that it will continue to rely on its PPPs
policy to preserve Chinese engagement. Due to Zambia’s PPP policy, some projects,
like the 750MW Kafue Gorge Hydroelectric Power Station, which had previously
relied on Chinese loans, have since moved forward with Chinese investment.
However, the IMF agreement also implies that this strategy would be changed, which
raises a lot of doubt. Furthermore, PPPs generally cause Chinese organisations to be
somewhat hesitant because they call for a deeper awareness of the local context.
Zambia’s administration appears to be at ease with the IMF’s suggested policy
changes, and the nation appears to have received from China what it asked for: a
reduction in projects, generating fiscal room, with the option to switch to PPPs if
Chinese businesses continue to be interested in Zambia.
The Zambian arrangement appears perfect for other African borrowers, notably with
regard to maintaining finance from China, as it is the first African nation to negotiate
a post-COVID-19 bailout from the IMF under the G-20 framework with China.
Despite only having a debt to GDP ratio that is less than half of its historical peak in
the early 1990s, Zambia is forced to choose between repaying loans, resolving
significant economic gaps, and reducing poverty.