Zambia Civil Society Debt Alliance and Debt Justice Call for Private Creditors to Cut Debt Payment by 50%
17/07/2023
ACTSA supports the findings in the recent report produced by the Zambian Civil Society Debt Alliance and Debt Justice, calling for more urgent attention to resolving Zambia’s debt crisis. The report estimates that Zambia’s private creditors need to reduce their debt payments by over 50% to match the debt relief agreed by governments.
In June, Zambia reached an agreement in principle to restructure $6.3 billion of debt owed to other governments. Restructuring negotiations on a further $6.5 billion of debt owed to bondholders, Western banks, and Chinese private lenders are still ongoing. The deal with governments has been reported to cut the relative size of Zambia’s debt payments by 40%.
However, the story differs with regard to private creditors. As they provided loans on worse terms, with higher interest rates, The Zambian Civil Society Debt Alliance and Debt Justice argue that reducing their debt to the same terms as government lenders would require a 50% cut in the relative size of payments. While a massive cut, the researcher predicts the bondholders will still break even or even makeup to a 50% profit. This demand is in line with the G20’s Common Framework, requiring private credits to be treated in a similar manner to government lenders.
Deals with government lenders are also not without its risks, as the manner in which this deal is structured includes the possibility that relief for Zambia’s government could be reduced to just 18%. This has to do with a clause that increases interest payments, and brings forward principal payments, if the IMF and World Bank judge that Zambia’s debt-carrying capacity has increased. This scenario could take place even if there are relatively small changes to some indicators, such as an increase in Zambia’s financial reserves or world economic growth.
This, in turn, also affects Zambia’s ability to implement growth-inducing policies; instead, they have to implement austerity and structural adjustments in order to follow contractual obligations with lenders. The continuation of this cycle results in poor prospects for Zambia and Global South countries more generally.
ACTSA supports the Zambian Civil Society Debt Alliance and Debt Justice in their call to #CancelTheDebt.
Please find their report here: