ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Lessons from a Zambian Stand-off

The Zambian experience suggests that the prevailing international financial architecture aims to get bilateral creditors, in this case principally China, to carry the burden of a restructuring process which protects the interests of, and even favours, private creditors who leveraged cheap capital and rushed into the less developed country market in search of high yields.

The fact that the prevailing international financial architecture (IFA) is not fit for the purpose of ensuring fairness and stability in global economic relationships was once again revealed when Zambia’s strenuous ef­forts to resolve its external debt crisis fell apart recently. Zambia, in November 2020, was the first country to default on external debt payments after the pandemic. Following that, the government of Zambia began negotiations with the International Monetary Fund (IMF) to discuss and accept conditions and a programme that the latter defined as necessary for a successful process of restructuring. The perception was, and is, that once an IMF-designed restructuring process is accepted by the debtor government and put in place, all creditors would fall in line.

Eligible to be considered under the G20’s Common Framework for Debt Treatment, Zambia was the first country that chose to opt for the route in which the restructuring of debt from creditors, along the lines laid out in a debt sustainability analysis (DSA) from the IMF, would reflect comparable or equal treatment of different creditors. This required obtaining financing assurances from the bilateral creditors to obtain emergency credit from the IMF, negotiating a detailed restructuring deal with these bilateral creditors that met the IMF’s DSA standards, and then making private creditors accept a comparable restructuring arrangement. The fact that this process, which took almost three years after the initial default to complete, fell apart, points to the inadequacy of the IFA to resolve one of the most pressing challenges facing the international community today.

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Updated On : 18th Jan, 2024
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