China loans: Africa debt forgiveness is complex

Wednesday July 29 2020

Chinese President Xi Jinping welcomes President

Chinese President Xi Jinping welcomes President Museveni during a recent meeting. Many African countries have urged China to consider debt relief as a way of stimulating economic growth on the continent. Photo | File 

By AGGREY MUTAMBO

The Chinese government is developing cold feet at continued requests to forgive debt owed by African countries in what could place new pressure on the continent.

Last week, Zambian President Edgar Lungu asked his Chinese counterpart Xi Jinping for some “debt relief and cancellation” to save the economy, in a phone call.
But there was no commitment from Beijing, according to a statement issued by Lungu’s office.

“President Lungu called for debt relief and cancellation in light of reduced revenue due to the negative impact of the pandemic [Covid-19], as well as competing needs for the country, to secure adequate resources to fight [Covid-19] and to stimulate the economy,” Lungu’s spokesman Isaac Chipampe, said last week.

Heaviest burden

Zambia is among countries in Africa heavily indebted to China. Of the more than $10b external debt, Lusaka reportedly owes China some $6.4b mostly in infrastructure development financed by Chinese lenders.
A recent assessment by business risk consultancy firm EXX Africa showed Zambia was running into a “dire” straits on repayment. Last year, Lusaka failed to repay a loan to the Africa development Bank on time as well as loan repayments to China.

Earlier this year, China’s National Complete Engineering Corporation halted work on the $500m Kafulafuta Dam in the Copperbelt after Lusaka delayed payments due to the Chinese firm.

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“In February [2020], S&P ratings agency lowered its long-term sovereign credit rating on Zambia to ‘CCC’ from ‘CCC+’, warning that the country is vulnerable to non-payment of upcoming commercial obligations,” EXX reported.

Lusaka has since borrowed more, but defaulted on payments to an Italian bank, a Russian company and other Chinese constructions firms .
Officials in Beijing have not spoken directly on the Zambian case, except confirming that they will continue to cooperate under the Belt and Road Initiative, an ambitious programme by Beijing to link countries through trade and infrastructure.

Other borrowers
But Zambia’s case is not unique. China is owed about $145b in Africa, making it the biggest bilateral lender.
In Uganda, China holds close to $1.6b of the country’s debt while Kenya holds $5b.
Rating agency Moody’s has rated Ghana, Angola and Kenya as countries facing credit risks with a high possibility of default.

In June, President Xi said China would cancel interest-free debt owed by “relevant” African countries as part of a move to help the continent during Covid-19.
But most of China’s debt is concessional or issued by private entities meaning the credit is harder to forgive.

Complexities
Mr Lijian Zhao, spokesperson of the Chinese Foreign Ministry had earlier alluded to Africa’s “complex” debt situation, which he argued made it difficult to offer any blanket forgiveness.
He, however, pledged that Beijing was “willing to study the possibility of it with the international community.”
In April, the International Monetary Fund approved a $500m fund to cancel half a year of debt owed by 25 countries.

Nineteen of them were from Africa and would benefit from the IMF’s Catastrophe Containment and Relief Trust (CCRT) to address the impact of Covid-19.
But all of Africa’s beneficiaries were considered Least Developed Countries, who have mostly received grants, not concessional loans.

They included Benin, Burkina Faso, Central African Republic, Chad, Comoros, DR Congo, The Gambia, Guinea, Guinea-Bissau and Liberia.
Others were Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, São Tomé and Príncipe, Sierra Leon and Togo.

China’s power
Ms Yun Sun, a non-resident fellow for Global Economy and Development, Africa Growth Initiative at the Brookings Institution, said Africa’s debt situation cannot improve unless China offers to consider forgiveness.

“Even with this massive debt relief by so many players in the international community, without the participation of China in this endeavor, African countries still stand to suffer,” she observed in a paper, adding: “China is unlikely to take a unilateral approach to debt forgiveness, especially on concessional loans and commercial loans, which constitute the majority of African debts owed to China,” she added.

Instead, Beijing is likely to go for delayed repayment, restructuring of loan repayment or swapping of debts for equity. The problem is that most of Chinese loans are anchored in secrecy.

China has in the past said that it will deal with individual African cases. But can the defaulting Zambia open the chapter on forgiveness? Indications were that Beijing was dithering.

editorial@ug.nationmedia.com

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