The tiny African country is pushing its creditors to forgo some of the loan repayments, creating a pathway that other low-income countries can benefit from.

At least half a dozen low-income countries are facing problems with foreign lenders similar to those that Zambia is trying to resolve in a high-stakes negotiation.

A relief for the South African nation, one of the poorest in the world, can become a roadmap for Angola, Cameroon, the Republic of Congo, Djibouti, Ethiopia, Kenya and Sri Lanka to resolve their own debt crisis.

In a big breakthrough, China and France announced last week that they were ready to take a haircut – which means giving up some of their loan repayments – to help Zambia.

In 2020, Zambia became the first African country to default on debt repayments following the onslaught of the Covid-19 pandemic, which hit global economic output.

Zambia owes $17 billion to external creditors. Of this amount, about $6 billion is owed to China alone.

According to the World Bank, the poorest countries will pay their creditors 35 billion dollars this year in repayment of debt service, of which about 40% will go to China.

China and France have offered debt relief to Zambia under the joint G20 framework designed to help indebted countries.

A debt restructuring with its creditors paves the way for Lusaka to receive the much-needed $1.4 billion in loans from the International Monetary Fund (IMF).

But the African country still has to deal with private creditors who fear they don’t have enough information about the deal.

Private creditors, who lend to governments against sovereign bonds, are often the main obstacle to debt restructuring.

While China figures as one of the top creditors to low- and middle-income countries, private creditors, including banks, often charge higher interest rates.

BlackRock, the world’s largest asset manager, stands to earn 118% or $180 million on its debt if Zambia decides to repay it in full, says Jubilee Debt Campaign, which lobbies for debt relief.

Over the past decade, Zambia has accumulated a huge external debt.

Debt relief advocates say indebted governments should default on their debts because it frees up revenue, which can be spent on health and education instead.

Landlocked Zambia is Africa’s second-largest copper producer, which has seen a drastic drop in its price during the pandemic, putting a strain on the country’s finances.

In just five years between 2012 and 2017, the average external debt as a percentage of GDP in low-income developing countries rose from 30.35% to 50%.

Jubilee and other NGOs have called for the full cancellation of developing country debts, which is not unusual.

In 2001, developed economies agreed to provide $34 billion in debt service relief to 23 Heavily Indebted Poor Countries (HIPCs), 19 of them in Africa. The initiative aimed to fight against poverty.

Of the total debt of African countries, about 32% is owed to private investors – that’s about $132 billion, according to one study.

Most of the debt of developing and low-income countries consists of loans, all borrowed to repay previous borrowings, trapping them in a vicious circle of debt.

Between 2000 and 2014, Zambia experienced rapid economic growth, averaging around 6.8%. He also borrowed money for infrastructure projects such as roads and highways.

President Hakainde Hichilema, who ran an accounting firm before joining politics, won elections last year over his resentment over economic mismanagement and the debt crisis.

Source: World TRT