Zambia's default fuels fears of African 'debt tsunami' as Covid impact bites

Zambia has become the first African country to default on its debts since the pandemic, leading to fears that a “debt tsunami” could engulf the continent’s most heavily indebted nations as the financial impact of coronavirus hits.

A hastily-arranged G20 finance minister meeting in Saudi Arabia failed to sort out Zambia’s debt, after the southern African country missed a $42.5m (£32m) coupon payment on its bonds in October. Missing another payment on 14 November meant a technical default.

Zambia’s finance minister, Bwalya Ng’andu, was quick to blame the banks and asset and fund managers who wanted to see more transparency over an estimated $3bn debt to China, but who refused to sign the necessary confidentiality agreements, he said.

Ng’andu said on state television, “The position of the Chinese banks is: ‘You’re not going to give anybody any information without the confidentiality agreements in place’.”

The Zambia External Bondholder Committee, a consortium of lenders that own 40% of Zambia’s outstanding Eurobonds, said in a statement they had had no direct discussions with authorities. As a result, the “lack of engagement and transparency does not provide for the conditions that would otherwise allow bondholders to consider providing near-term relief”, they said.

Other organisations, including the International Monetary Fund (IMF) and World Bank, have said Zambia has taken on more debt than it could handle. Even before the pandemic, Zambia was due to pay $1.7bn to service its debts this year – equating to more than 8% of the country’s GDP for 2020.

But coronavirus plays a key role in the recent default. As financiers negotiate with finance ministers over repayment terms, the virus is depleting Zambia’s already fragile healthcare resources.

“As I speak it’s raining outside,” said Eneya Maseko, a programme manager for Oxfam in Zambia, who said the arrival of the wet or rainy season would bring additional challenges like cholera and potentially a second wave of Covid-19. So far Zambia has recorded almost 18,000 cases of the virus.

“This era we’re in comes with serious health challenges. We need healthcare providers to have some level of preparedness,” Maseko said.

But the Zambian government is now debating a budget that would see less money spent on healthcare and more on servicing debt repayments.

“It is simply immoral for bondholders to demand full repayment and to make huge profits on Zambia’s debt while the country struggles with Covid-19, a major economic crisis and spiralling poverty levels,” said Sarah-Jayne Clifton, director of the Jubilee Debt Campaign, which estimated that some financial institutions will make a 250% profit on their Zambian bonds.

Neighbouring governments are rattled: if Zambia has had to default, they could too.

“Ghana looks very risky to me,” said Tim Jones, head of policy at the Jubilee Debt Campaign. He said Angola, Chad and Congo-Brazzaville were also at risk.

A separate study by the Institute of International Finance warned of a “debt tsunami” as global indebtedness topped $277tn in the third quarter of this year. In emerging markets, which are more likely to default, debt has risen by more than a quarter.

This potential wave of defaults could have catastrophic effects on already fragile healthcare systems, aid agencies warned.

“At a time when hospitals and healthcare systems are buckling under the strain of Covid-19, it is perverse that poor countries are having to pay $3bn a month in debt repayments to rich banks, investment funds or the World Bank, while their populations fall further into poverty and destitution,” said Chema Vera, Oxfam International’s interim executive director. “Debt needs to be cancelled, postponing it is futile.”

“The UN security council could pass a resolution to compel private creditors to accept a debt restructuring,” said Jones, who argued that private lenders are proving the hardest to negotiate with when it comes to debt restructuring deals.

The terms of Zambia’s default will be negotiated next month when the IMF visits the country to discuss a potential $1.3bn loan. These terms could provide a template for other countries that are on the verge of default.

“For the ordinary Zambian those things they require to live a decent life and be in good health will be very difficult to expect from government,” said Maseko. “I am really struggling to think of a worse case scenario.”


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