Economists Urge Lenders To Cancel Zambia's Debt

A group made up of over 100 economists and academics has urged international lenders to write off significant portions of their loans to Zambia as the country seeks debt relief of $8.4 billion. 

Led by the Columbia university economist Jeffrey Sachs and Jayati Ghosh, the chair of the Centre for Economic Studies at Jawarlal Nehru University, the group of experts wrote an open letter to Zambia’s creditors’ negotiating committee saying that they should waive debt interest payments until 2023.

In the letter the academics said “Because of the high interest rates and the fact Zambia’s bonds have been trading at well below face value since 2018, many bondholders stand to make huge profits at the expense of both Zambian citizens and creditor countries if paid at face value.”

Earlier this month the International Monetary Fund (IMF) approved a $1.3 billion loan to the Zambian government in order to kickstart debt restructuring negotiations. Those negotiations will involve the Chinese, French and British governments and will attempt to set Zambia on a more sustainable fiscal path following years of government overspending under the Patriotic Front.

The academics’ letter, which has been endorsed by the anti-poverty charity Debt Justice, singles out the world’s largest investment manager BlackRock as having a particularly important part to play in debt restructuring negotiations.

Funds run by BlackRock are among the largest private owners of Zambia’s bonds, holding some $220 million.

“It is therefore imperative that BlackRock and other bondholders afree to fully engage in a large-scale debt restructuring, including significant haircuts, in order to make Zambia’s debt sustainable,” the letter said.  

Restructuring Zambia’s debt in order to free up public finances was a major election promise of President Hichilema’s New Dawn government. Tim Jones, the head of policy at Debt Justice, says the government’s IMF loan will give the country some vital breathing space but that the $8.4 billion in interest payments due over the next couple of years should be “cancelled permanently, not rolled over to the 2030s to fuel another debt crisis next decade”.

After President Hichilema was declared president in 2021, the value of Zambia’s bonds soared, signalling the market’s confidence in him to deliver fiscal responsibility. Since then the government has been in close communication with lenders, including China which owns 22% of Zambia’s external debt, in order to achieve a sustainable outcome.