Zambia’s Looming Default Is Only the Start of a Global Reckoning With Debt

Zambia’s Looming Default Is Only the Start of a Global Reckoning With Debt
Zambian President Edgar Lungu shakes hands with Chinese leader Xi Jinping at the Great Hall of the People, in Beijing, Sept. 1, 2018 (pool photo by Nicolas Asfouri via AP).

With its economy in trouble from a high public debt burden as well as the COVID-19 pandemic, Zambia’s government recently suspended interest payments on some sovereign bonds. The country is already in arrears on some of its debt—including $183 million in official bilateral loans from other countries and $256 million from commercial banks—and has asked for a six-month suspension on interest payments from the holders of its $3 billion in Eurobonds, which are denominated in foreign currencies. These bondholders are due to make a final decision on Zambia’s request in mid-November, but a substantial portion of them have so far indicated an unwillingness to provide such a payment holiday.

While Zambia has been portrayed as the first pandemic-related default, the country’s debt burden was significant prior to the arrival of COVID-19. Zambia’s borrowing surged over the past decade, with loans from bilateral creditors—especially China—for infrastructure projects, and from private bond markets for general consumption. Zambia’s 10-year Eurobond issue in 2012 carried an interest rate of around 5.6 percent, a relatively low rate for a “frontier market” country. But its debt burden increased dramatically in subsequent years, and by mid-2019, the Eurobonds issued in 2012 were trading at a yield of 20 percent, suggesting dramatically higher borrowing costs if Zambia sought new credit. In August 2019, a joint International Monetary Fund-World Bank debt sustainability analysis warned that Zambia was in a perilous position: Interest payments on its debt had become quite substantial, analogous to charges on a high-interest rate credit card.

In the years after the global financial crisis, creditors became more willing to lend to governments from low- and middle-income countries. In a global environment with persistently low interest rates, emerging and frontier markets offered private investors opportunities for higher returns. And, for creditor countries, especially China, loans represented a pathway to new trade and investment opportunities, as well as to expanded soft power and diplomatic influence. Between 2008 and 2020, the public debt of low- and middle-income countries more than tripled.

Keep reading for free!

Get instant access to the rest of this article by submitting your email address below. You'll also get access to three articles of your choice each month and our free newsletter:

Or, Subscribe now to get full access.

Already a subscriber? Log in here .

What you’ll get with an All-Access subscription to World Politics Review:

A WPR subscription is like no other resource — it’s like having a personal curator and expert analyst of global affairs news. Subscribe now, and you’ll get:

  • Immediate and instant access to the full searchable library of tens of thousands of articles.
  • Daily articles with original analysis, written by leading topic experts, delivered to you every weekday.
  • Regular in-depth articles with deep dives into important issues and countries.
  • The Daily Review email, with our take on the day’s most important news, the latest WPR analysis, what’s on our radar, and more.
  • The Weekly Review email, with quick summaries of the week’s most important coverage, and what’s to come.
  • Completely ad-free reading.

And all of this is available to you when you subscribe today.

More World Politics Review