As of Friday, Nov. 13, the African nation of Zambia has become the first official “COVID default,” after bondholders refused the nation’s request for a six-month extension on a $42 million interest payment, originally due on Oct 15. In this, Zambia is only steps ahead of other developing nations, many of which barely survived the “first wave” of the pandemic — by postponing financial obligations — but are not likely to survive the second.
Despite continued public efforts to pin Zambia’s poor creditworthiness on China, the bonds which are immediately in default are held by a consortium of European and American (Western) lenders, which lent Zambia a total of $3 billion, in three different deals in 2012, 2014 and 2015, when copper prices were soaring in the wake of the 2008 “Great Recession.” Lenders were eager to lend, offering cheap, 5.4% interest rates, which quickly jumped to 8.5%, then 8.9% for later (and larger) loans, just as the price of copper — Zambia’s primary source of foreign income — was backing off its historic highs.
Chinese lending to Zambia is now estimated at $6.5 billion, although the terms of these loans are not known. Bondholders have been using the looming default as leverage to try and force the Zambian government to open their books, where they hope to glean much-sought-after details about its loans from China, details for which Western (especially British) financial “analysts” have been conspiring ever since China became a global development powerhouse in 2013. This may also be the reason Zambia has balked at taking a “reassuring” loan from the IMF, for which bondholders are pushing.
Several news outlets are now noting that this is just the beginning for African defaults, pointing to Kenya and Ethiopia, specifically, as likely next on the block, based on their “excessive” Chinese borrowing. Looking beyond the African continent, however, Princeton Prof. Layna Mosley observes that, “there is a sense that debt relief and restructuring is necessary for many countries, and that delaying it will only worsen the problem in many parts of the world.” Her Oct. 29 analysis is titled, “Zambia’s Looming Default Is Only the Start of a Global Reckoning With Debt.” https://www.worldpoliticsreview.com/articles/29173/the-looming-zambia-default-is-only-the-start-of-a-global-reckoning-with-debt
