Zambia is on the brink of defaulting on its foreign debt after it missed a payment of more than $40m (£30m) last month. A so-called grace period will expire on Friday, which would make it Africa’s first country to default on sovereign debt since the coronavirus pandemic.
Zambia was already struggling with its $12bn external debt load. But coronavirus has aggravated pre-existing financial pressures in the country.
The pandemic has put an additional burden on health services and depressed economic activity. Zambia has asked for a delay to interest payments until April next year but creditors have not yet agreed. The debt includes about $3bn in bonds issued in Europe.
Sarah-Jayne Clifton, director of the UK-based Jubilee Debt Campaign, which is calling for debt relief for the world’s poorest countries, said creditors lent to Zambia at high interest rates knowing the debt would probably become too great.
“That risk has now materialized, and bondholders must now accept a significant debt write-down,” she told the Reuters news agency this week.
“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,” she added. But bondholders have so far not expressed support for a delay.
Eurobond holders have pointed out that the country has not made headway in talks with the International Monetary Fund (IMF), while a perceived lack of transparency in Zambia’s borrowing from China has also been cited as a reason.
Zambia is not the only country in Africa struggling with an increasing international debt, and other governments will be watching closely as to how borrowers and creditors deal with the case.