Under Distress from Past Chinese Loans, Zambian Cabinet Directs Minister of Finance to Renegotiate Chinese Debt
A meeting of Zambia’s Cabinet on February 13 resulted in the Minister of Finance being tasked to restructure the country’s loans from China after the International Monetary Fund warned that Zambia is at serious risk of debt distress. As recently as June 2017, the Ministry of Finance was reportedly seeking up to $8 billion in new loans from Chinese lenders, in addition to a $1.6 billion loan from the IMF. If approved, Zambian public debt would have risen from the existing level of $7.6 billion to over $17.2 billion, dangerously close to Zambia’s total GDP of $21.2 billion.
Zambia’s financial predicament is linked both to China’s status as the number one importer of Zambian copper as well as serving as the primary financier of its public debt. As of 2016, over 70% of Zambian copper-related exports went to China, meaning that the global price of copper was highly tied to the performance of the Chinese economy. As growth in China has slowed, so has the Zambian copper sector, with prices down by 50% at one point. This makes servicing the country’s debt, of which China holds over half, more complicated. According to data from IntelTrak, Beijing’s total lending to Zambia equals $4.37 billion of a total of $7.6 billion. While China is responsible for Zambia’s perilous financial position, it is difficult to identify an incentive for Beijing to renegotiate terms, other than to stabilize a situation in which the country has invested so much in search of securing resources and supply chains.
The day after the Cabinet meeting, President Edgar Lungu announced a cabinet reshuffle that saw Margaret Mwanakatwe transfer from the commerce portfolio to the finance portfolio. Finance Minister Felix Mutati was reassigned to the works and supply portfolio. The move is seen as an attempt to get talks moving again after previous negotiations with the IMF stalled under Mutati’s tenure. The move may also signal disapproval with Mutati’s pursuit of a further tranche of loans from Beijing.