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China Holds Back While Zambia Hurts

FILE: A truck exits the mine after collecting ore underground at the Chibuluma copper mine in Zambia. China has invested heavily in African extractive industries such as mining for the raw materials needed for manufacturing. Taken January 17, 2015.
FILE: A truck exits the mine after collecting ore underground at the Chibuluma copper mine in Zambia. China has invested heavily in African extractive industries such as mining for the raw materials needed for manufacturing. Taken January 17, 2015.

China's lack of experience with tricky debt restructurings and slow coordination among its public lenders is holding up debt relief for Zambia, a test case for the top emerging market creditor, three sources familiar with the matter said.

Zambia's external debt topped $17 billion at the end of 2021, a third of which was owned to China according to Zambian government data..

A year earlier, Zambia was the first country to default in the COVID-19 pandemic era, struggling under a debt burden worth 120% of GDP.

"Our debt burden is choking our country's growth potential and the debt restructuring exercise is becoming more urgent day by day," Zambia's finance ministry said in an emailed statement in response to questions about China's role in the debt process.

China agreed last month to co-chair Zambia's official creditor committee with France, a move welcomed by Zambia's government.

However, China's lack of experience with tricky debt restructurings and slow coordination among its public lenders is holding up debt relief for this African nation.

"There is a learning curve for China and that is something we need to recognize," said a French official, who declined to be named due to the sensitivities of the issue.

Another source said that while China's central bank had been willing to move ahead, the finance ministry has been wary of "setting a costly precedent" elsewhere if it accepts big losses on loans made to Zambia.

China's foreign ministry did not respond specifically to questions about whether delays were partly due to internal coordination issues and unwillingness to accept losses on loans.

"China is ready to work with the international community and continue to provide within its capability Zambia with the necessary support to address its current practical difficulties," the Chinese foreign ministry's statement said.

Zambia reached a staff-level agreement with the International Monetary Fund on a $1.4 billion extended credit facility in December, but the money cannot flow until Lusaka and its creditors agree on reducing the debt to sustainable levels.

Zambia's finance minister has repeatedly said he hopes the negotiations will be concluded by the end of June, a timetable analysts deem ambitious.

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