ZAMBIA’S DEBT RESTRUCTURING- WAY FORWARD
By Lubinda Haabazoka, Phd
As usual, I come only in peace
Debt restructuring is the process that involves changing the terms of a loan contract by either increasing the loan tenure and manipulating the cost of the loan. The main aim of restructuring debt is to ensure that it becomes easier for the borrower to make principle and interest payments as they fall due.
Debt restructuring is easier done when you are dealing with one loan and one lender as opposed to dealing with multiple lenders.
In the case of Zambia and for the purpose of this write up, our debt can be divided into western commercial debt, Eurobonds, eastern commercial debt and concessional loans.
The most easiest to restructure are concessional loans because here Zambia is dealing with a bilateral who has a human face. For this reason, it’s infact even easier to restructure Chinese commercial debt because the Chinese government (the bilateral partner) has some form of influence on Chinese commercial lenders. The most difficult to restructure are Eurobonds because these are owned by thousands of investors who have put their savings into these bonds.
So why is debt restructuring dragging?
Unlike what others speculated, debt restructuring in the case of Zambia is a very complex process. For this reason, the author supported the acquisition of Lazard services because the experience of that company ensured that they brought all lenders together in one room and convinced many to a debt repayment suspension. Am sure the time that has passed since a new party came into government has confirmed that indeed restructuring debt can be complex.
The major problem we are facing today is our inability to come up with a creative solution for our debt. As rightly put by the Chinese, the world bank should play ball when it comes to the restructuring process. Zambia needs to convince the world bank to buy off all Eurobonds and some commercial loans then convert them into long term loans of up to 30 years with a debt repayment grace period of 5 years. This move will ensure that half of Zambia’s debt will have a human American/European face in the name of the world bank. Then the other part of debt to China can now be renegotiated on bilateral terms mirroring the world bank terms. The remaining debt then can be consolidated or even serviced as it is.
What not to do?
As it is, we should try by all means to avoid being caught up in the Cold War between east and west because we shall be economically bruised and it’s only the common masses to suffer. There is need for various government ministries to engage with nations and not favor just a few. Trust me, as it stands, a country like Russia for example has an influence on what the Indians or the Chinese do simply because like NATO, BRICS grouping is now making decisions together. India for example can be used to get something out of Saudi Arabia or South Africa can play a role in convincing that Russians to behave in a certain way. This is the kind of diplomacy that I see missing.
Today the IMF/ World bank has no complete control over the international monetary system. BRICS nations have created their own alternative that is why Iran, Russia and others are going to survive the sanctions. The BRICS countries also don’t have control over the global financial architecture and as such our position as a country should be to allow access to both. That is called risk diversification.
To me, there is good will from the west and frustration from the east. Unfortunately our western partners are even making it more complicated for us to restructure our debt because it seems they are openly trying to fight China on Zambian soil. Misinformation by Bloomberg that Zambia had rejected the Chinese debt proposal is one such example of western sabotage.
We should be naive to think that eastern reduced appetite to venture into Zambia has nothing to do with the fall of our currency. We need to really analyse our position in global economics. Until other players remain frustrated to a level where maybe even official correspondence from them is ignored, it will be difficult for us to find a footing.