As the economic fallout of the global pandemic and the worldwide economic slowdown continues to reverberate, many African countries and developing nations find themselves grappling with mounting debt. China has been criticized for its “reluctance to restructure the debt of African nations, which have been severely impacted by the pandemic and their respective debt crises.” China has repeatedly denied the claim, but the delay has had significant economic, political, and social repercussions for these nations. Two African nations, including Ethiopia, are most negatively affected by the delay.
Zambia: Defaulting on Debt amid Economic Turmoil
Copper-rich Zambia has experienced a significant economic decline in recent years, primarily due to declining commodity prices and the global pandemic. In November 2020, the country failed to make a USD 42.5 million payment on one of its Eurobonds, making it the first African nation to default on its sovereign debt during the pandemic. China is Zambia’s largest bilateral creditor, holding approximately 30 percent of the country’s total USD 8.3 billion external debt.
The delay in debt restructuring has exacerbated the nation’s economic difficulties. It has been difficult for the Zambian government to fund essential public services such as healthcare, education, and infrastructure initiatives.
The delay in the process of debt restructuring is also diminishing investor confidence, reducing foreign direct investment and foreign exchange earnings. This week, United Nations experts expressed grave concern over delays in reaching an agreement on the restructuring of Zambia’s debt and the resulting negative impact on human rights and the livelihoods of the people.
“We are worried that despite positive reforms undertaken by the Government of Zambia, the delays in sovereign debt restructuring compromise its ability to mobilise and maximise resources for the full realisation of human rights, as per its obligations under international human rights law,” the experts said.
“One of the major reasons for this delay in debt restructuring is the lack of a globally coordinated multilateral sovereign debt mechanism that places traditional and private lenders at an equal footing,” the experts added.
Ethiopia: Stalled Debt Relief and Economic Uncertainty
Ethiopia, another nation severely affected by the pandemic, has had trouble obtaining debt relief. Ethiopia requested debt restructuring early in 2021 under the G20’s Common Framework for Debt Treatments, a multilateral initiative designed to facilitate debt relief for eligible nations.
However, the process has been sluggish. China is Ethiopia’s greatest creditor, holding approximately 25 percent of the country’s total external debt, which hovers around USD 29 billion. The lack of progress in debt restructuring has increased economic uncertainty, which has been compounded by the two-year conflict in the Tigray region.
As Ethiopia navigates these obstacles, the IMF and WB have been providing financial assistance and policy advice. In September 2021, the IMF authorized a disbursement of USD 407 million to assist Ethiopia in addressing the economic consequences of the pandemic and the conflict in Tigray. Despite this aid, the delay in debt restructuring continues to bear heavily on the economic prospects of the country.
The Ethiopian government has warned that if the process of reducing debt is not speed up, it is likely that the country will default on its loan. In the next two years, Ethiopia’s annual debt service payments will double from two billion dollars to four billion dollars. This comes on top of a rising import bill due to the rising cost of imported commodities, including fuel, on the global market, causing concern that the 120 million-people nation’s foreign exchange shortage will worsen.
In the past three years, the availability of foreign exchange has decreased, contributing to a significant decline in reserves. The decline in Official Development Assistance (ODA) between 2020 and 2022 was substantial. The Ministry of Finance’s official statistics indicate that ODA has decreased from USD 4.7 billion in 2020 to USD 3 billion in 2021 and USD 2.7 billion in 2022, a decline of more than 40 percent.