Zambia missed a $42.5m (£32m) coupon payment on its bonds in October and then missing another payment on 14 November meant it 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.
Zambia’s finance minister, Bwalya Ng’andu, blamed 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.
“The position of the Chinese banks is: ‘You’re not going to give anybody any information without the confidentiality agreements in place’.”
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. So far Zambia has recorded almost 18,000 cases of the virus.
“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.
“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.”
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.
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.