Zambia Paid $82 Million to China Before Debt Revamp Deal

(Bloomberg) -- Zambia’s state power utility made an $82 million payment to the Export-Import Bank of China before reaching a debt restructuring deal with its official bilateral creditors, the African nation’s finance ministry said.

Zesco Ltd., as the utility is known, transferred the funds from a securitized account as a principal prepayment after board approval in December 2022, Zambia’s finance ministry said in a statement Saturday. The government had suspended payments to its official and commercial creditors in 2020, becoming Africa’s first pandemic-era sovereign defaulter.

The move raises questions over comparable treatment of creditors required under the Group of 20’s Common Framework debt restructuring guidelines that Zambia adopted to revamp about $13 billion in external debt. The government reached a memorandum of understanding with its official creditor committee in October 2023, and is yet to ratify that bilaterally with China Exim.

The debt that Zesco “unfortunately” paid was supposed to have been included in Zambia’s debt restructuring — a process not yet concluded, Secretary to the Treasury Felix Nkulukusa said Dec. 8. The payment was for the Kariba North Bank Extension hydropower project, according to the finance ministry statement, a different facility to the one identified by Nkulukusa.

In efforts to “normalize” the situation, Zambia has proposed that the payment count as an advance on the interest accumulating on its debt to China since 2023, Nkulukusa said. “That is the discussion we have,” he said. “We’re looking for a solution to that.”

When the finance ministry discovered Zesco made the payment, it immediately instructed the company to make no further transfers and informed Zambia’s official creditor committee secretariat, proposing a remedy, said Nkulukusa.

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