Zambia becomes the first African economy to default her debt since the coronavirus pandemic. The grace period granted to Zambia lapsed on Friday, 13th November 2020. This was despite Zambia’s Finance Minister Bwalya Ng’andu telling Reuters news agency that the country was doing “everything possible” to avoid default. The grace period was for payment of 750 million USD Eurobond which expires in 2022.
Zambia’s central bank governor, Christopher Mvunga was quoted saying;
“It is not that we could not pay. It’s just that if we pay one creditor, then we need to pay all the creditors. So the decision that was undertaken, which was a conscious decision, is that we will not pay any of the creditors and we will treat all of them equally and with the view that we will come up with a constructive, progressive, forward-looking plan on our debt sustainability which will allow us in the future to meet all our credit obligations.”
Is Corona Virus Pandemic to be blamed?
Although the coronavirus has had adverse effects on both the developing and developed countries, there is more to the Zambia dues default. Critics have pointed accusing fingers at Zambia’s President Edgar Lungu’s poor economic management and corruption incidences in the country.
According to BBC news, Stephen Chan, an expert on African politics at the University of London, says that the last five years in Zambia has seen quite a reckless splurge in terms of debt accumulation. Zambia’s debt includes about $3billion issued in Europe and another $3billion issued by Chinese institutions.
High-Interest Rates on Zambian Loans
Sarah- Jayne Clifton, director of the UK-based Jubilee dues Campaign, which is advocating for debt relief for the world’s poorest countries, said creditors lent to Zambia at higher interest rates knowing that the debt would probably become too great.
Speaking to the Reuters news agency she said;
“It is simply immoral for bondholders to demand full payment and to make huge profits on Zambia’s debt while the country struggles with Covid-19, a major economic crisis, and spiraling poverty levels.”
What will be the effect of the default on the Zambian economy?
Simply put, no one will want to lend out money to a defaulter. And if otherwise, the lending countries would demand a higher return on their loans due to the high risk attached. In such a scenario, Zambia might have higher borrowing costs due to the high-interest rates attached to the loans they might acquire.
African Countries Debt Scope
It is important to know that Zambia is not the only African country struggling with dues. With the China Development Bank agreeing to a six-month delay in debt repayments, it clearly shows the debt burden that countries have. Many debt-weighed countries will be watching closely to see how creditors will deal with Zambia’s debt default.
The governments of the G20 leading economies have come up with a debt-relief initiative to ease the immediate pressure of the increasing International debts of most developing countries. If the G20 governments extend this dues relief, it will go a long way in helping the dues-ridden Zambian economy. Private-sector creditors can also be persuaded to follow suit in giving debt relief to countries with struggling economies.