Zambia and it’s Economic Challenges

Zambia has the third-largest economy in Southern Africa. Nevertheless, it is struggling to cope with economic conditions. Based on the preliminary information, the country’s sovereign debt will reach 96% of gross domestic product (GDP) in 2020.

China provided billions of dollars of loans for various infrastructure projects to several Sub-Saharan countries. The world’s second-largest economy allocated these loans as part of its Belt & Road initiative in the last couple of years. Zambia received a significant amount of money. Moreover, it is one of the biggest debtors among Sub-Saharan countries.

According to the new research conducted by EXX Africa, Zambia is restructuring as well as renegotiating the debt it accumulated as part of this project. However, Chinese companies are unwilling to restructure the debts.

The situation is even more complicated as Zambia is facing problems in many industries. For example, supply fell by 810 megawatts in November 2019. As a result, Zambia and Zimbabwe are suffering from 20-hour per power cuts. Severe drought conditions had a negative impact on hydropower plants.

As mentioned-above due sovereign debt continues to grow, and in this situation, Zambia is unable to pay electricity imports.

In 2019, the country already defaulted on numerous loans. One of them was the loan provided by the Italian bank Intesa Sanpaolo.

Economic problems and Chinese companies

This country is in a very difficult situation, as there is a high of further defaults on construction project financing and bond payments.

The belt & Road is a huge investment program initiated by China. The purpose of this program is to control a global supply chain and to boost economic activity. This program created problems for countries as they are unable to pay the debts on time.

In March 2019, China Exim Bank issued a warning. This bank threatened that Chinese companies would suspend work on infrastructure projects. The only solution it was ready to accept was to receive money Zambia owed to them. The report prepared by EXX Africa described several cases when the Chinese companies suspended several road construction projects due to this factor.

The cooperation with the International Monetary Fund (IMF) is another problem for the country’s government. The IMF has twice withheld a credit facility as the organization is not happy with Zambia’s high debt level. The monetary fund is also not satisfied with the foreign exchange reserves of Zambia.

Moreover, the Zambian GDP fell to just 2% during the last three years. Inflation almost reached 10%.

Let’s have a look at the official reports regarding the debt. Based on this report, external debt rose by $10.05 billion at the end of 2018.

Zambia’s economic problems are far from being over. In this situation, it will be tough to repay the debts. Chinese companies made it clear that they have no intention to restructure existing debt.

Additionally, 60% of a digital joint venture with Zambia’s national broadcaster is under the control of the Chinese media conglomerate StarTimes. Exim Bank also provided a $232 million loan for this venture. Zambian government should come up with a plan on how to deal with the excessive amount of debt.